Melinda's basis for her partnership interest is $250,000. If she receives a cash distribution of $290,000, her recognized gain is $40,000 and her basis for her partnership interest is reduced to $0. Melinda is still a partner after the distribution.

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When a partner receives a cash distribution that exceeds their basis in the partnership, the excess amount is recognized as a gain, and the partner's basis is reduced to zero.

Melinda's Basis for Her Partnership Interest Is $250,000