Kristen and Harrison are equal partners in the KH Partnership. The partners formed the partnership five years ago by contributing cash. Prior to any distributions Harrison has a basis in his partnership interest of $43,500. On December 31, KH makes a proportionate operating distribution of $46,500 cash to Harrison. What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH?
A)$0 gain, $0 basis.
B)$3,000 capital gain, $0 basis.
C)$3,000 capital loss, $0 basis.
D)$3,000 capital gain, $43,500 basis.

Question

Quizplus · Accepted Answer

Harrison receives a cash distribution of $46,500, which exceeds his basis of $43,500 by $3,000. This excess is recognized as a capital gain. After the distribution, his basis in the partnership is reduced to $0.

Kristen and Harrison Are Equal Partners in the KH Partnership