Tyson is a 25percent partner in the KT Partnership. On January 1, KT makes a proportionate, liquidating distribution of $16,000 cash and land with a $16,000 fair value (inside basis $8,000)to Tyson. KT has no liabilities at the date of the distribution. Tyson's basis in his KT Partnership interest is $20,000. What is the amount and character of Tyson's gain or loss from the distribution?

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Tyson's basis in his KT Partnership interest is $20,000. The total distribution he receives is $32,000 ($16,000 cash + $16,000 fair value of land). Since the distribution is liquidating, Tyson must reduce his partnership basis first by the cash received ($20,000 - $16,000 = $4,000 remaining basis), then by the fair market value of the land received. However, because the total distribution does not exceed his original basis in the partnership, Tyson does not recognize any gain or loss on the distribution.

Tyson Is a 25percent Partner in the KT Partnership