Barry has a basis in his partnership interest of $50,000 when the partnership distributes $60,000 in cash to Barry. As a result of the distribution, Barry reduces his basis in the partnership interest to $0, has a $60,000 basis in the cash received, and recognizes a gain of $10,000 on the distribution.

Question

Quizplus · Accepted Answer

This is true according to the rules for partnership distributions and basis adjustments. Barry's basis in his partnership interest is reduced by the amount of the distribution, so it goes from $50,000 to $0. He then has a basis in the cash received (which is not part of the partnership interest) of $60,000. In order to calculate gain, we compare the amount of the distribution ($60,000) to Barry's remaining basis ($0), resulting in $60,000 of taxable gain.

Barry Has a Basis in His Partnership Interest of $50,000