Juan's interest in the Gonzalez 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 a fair market value of $30,000.Juan will recognize:
A)No gain or loss
B)$2,000 loss
C)$10,000 loss
D)$20,000 gain

Question

Quizplus · Accepted Answer

CIn a liquidating distribution, the partner recognizes gain or loss based on the difference between the amount realized (cash plus the fair market value of property received) and the partner's basis in the partnership interest. Here, Juan's basis is $30,000, and he receives $20,000 in cash plus inventory with a basis to him of $8,000 (for a total of $28,000), resulting in a $2,000 loss. The fair market value of the inventory is not relevant for determining the gain or loss on the liquidation; what matters is the basis of the assets received and the cash. Therefore, Juan recognizes a $2,000 loss, not a gain or a loss based on the fair market value of the inventory.

Juan's Interest in the Gonzalez Partnership Is Liquidated When His