Ariel receives from her partnership a nonliquidating distribution of $9,000 cash plus a parcel of land. The partnership had purchased the land five years ago for $20,000, but it is worth $28,000 at the time of the distribution. Ariel's predistribution basis is $17,000. How much income will Ariel recognize due to the distribution, and what is her basis in the land?

Question

Quizplus · Accepted Answer

To determine the income Ariel will recognize due to the distribution, we need to compare the fair market value (FMV) of the property received to her total share of the partnership's basis. First, we need to calculate the total FMV of the property received:
FMV of cash: $9,000
FMV of land: $28,000
Total FMV: $37,000

Next, we need to determine Ariel's total share of the partnership's basis:
Predistribution basis: $17,000
Distribution received: $9,000 cash + $28,000 land = $37,000
Total distribution: $37,000
Total partnership basis: $20,000 (cost of land) + $17,000 (Ariel's predistribution basis) = $37,000
Ariel's share of the partnership's basis: ($17,000 / $37,000) x $37,000 = $17,000

Since Ariel's share of the partnership's basis is equal to the FMV of the property received, she will not recognize any income due to the distribution.

To determine Ariel's basis in the land, we need to allocate her share of the partnership's basis between the cash and land received. Since Ariel's predistribution basis was $17,000 and she received $9,000 cash, her basis in the land is $8,000 ($17,000 - $9,000). Therefore, her total basis in the land received is $8,000.

Ariel Receives from Her Partnership a Nonliquidating Distribution of $9,000