John has a basis in his partnership interest of $30,000. He receives a current distribution of $6,000 cash, unrealized receivables (FMV $11,000, basis $10,000), inventory (FMV $8,000, basis $4,000), and investment land (FMV $7,000, basis $6,000). The partners' relative interest in the Sec. 751 assets do not change as a result of the current distribution. His basis in the land is

Question

Quizplus · Accepted Answer

When a partnership distributes property including unrealized receivables and inventory, the partnership must recognize gain as if it had sold the property at fair market value. This gain is treated as ordinary income under Sec. 751. In this case, the total FMV of the property distributed ($26,000) exceeds its basis ($20,000) by $6,000, which is allocated to the unrealized receivables and inventory. John's basis in the land would remain the same since it was not a Sec. 751 asset. Thus, his basis in the land would be $6,000, which is its original basis before the distribution.

John Has a Basis in His Partnership Interest of $30,000