Alyce owns a 30% interest in a continuing partnership. The partnership distributes a $35,000 year-end cash payment to Alyce. In a proportionate nonliquidating distribution, the partnership also distributed property (basis of $20,000, fair market value of $30,000) to Alyce. Immediately before the distributions of cash and property, Alyce's basis in the partnership interest was $60,000. As a result of the distribution, Alyce recognizes:
A)No gain or loss.
B)Ordinary loss of $5,000.
C)Capital loss of $5,000.
D)Ordinary gain of $5,000.
E)Capital gain of $5,000.

Question

Quizplus · Accepted Answer

In a proportionate nonliquidating distribution, Alyce recognizes no gain or loss. The cash distribution reduces her basis by $35,000, and the property distribution reduces her basis by $20,000 (the property's basis), leaving her with a $5,000 basis in the partnership interest. No gain or loss is recognized unless the cash distribution exceeds her basis.

Alyce Owns a 30% Interest in a Continuing Partnership