Derrick's interest in the DEF Partnership is liquidated when his basis in the interest is $30,000. He receives a liquidating distribution of $20,000 cash and inventory with a basis of $8,000 and an FMV of $30,000. Derrick will recognize
A)no gain or loss.
B)$2,000 capital loss.
C)$2,000 ordinary loss.
D)$10,000 capital loss and $20,000 ordinary loss.

Question

Quizplus · Accepted Answer

Derrick will recognize a $2,000 capital loss because the total value of the liquidating distribution ($20,000 cash + $8,000 basis of inventory) is $28,000, which is $2,000 less than his basis in the partnership interest of $30,000. The nature of the loss is capital, not ordinary, because it pertains to the liquidation of his partnership interest.

Derrick's Interest in the DEF Partnership Is Liquidated When His