Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes aproportionate liquidating distribution of $20,000 cash and inventory with a $15,000 fair value (inside basis $5,000) to Daniela. JRD has no liabilities at the date of thedistribution. Daniela's basis in JRD is $21,000. What is the amount and character ofDaniela's gain or loss from the distribution?

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Daniela's basis in JRD is $21,000. She receives a distribution of $20,000 cash and inventory with a $5,000 basis. The total basis of the distribution is $25,000, which exceeds her basis by $4,000. However, since the distribution is liquidating, she reduces her basis to zero, and no gain or loss is recognized.

Daniela Is a 25% Partner in the JRD Partnership