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

Question

Quizplus · Accepted Answer

Brian's gain is calculated based on the difference between the fair value of the land and his basis in the partnership interest. The cash distribution does not create a gain because it is first applied against his basis. The land has a fair value of $16,000, but since his basis in the partnership is $16,000 (which is fully reduced by the $20,000 cash distribution), the entire fair value of the land represents a gain. However, because the land's inside basis ($8,000) is less than its fair value, the gain recognized is limited to the difference between the land's fair value and its inside basis, which is $8,000. Since Brian is a 25% partner, his share of the gain is 25% of $8,000, which equals $2,000. This calculation was incorrect; the correct approach is to recognize that Brian's basis in his partnership interest is first reduced by the cash distribution, leaving no basis against which to offset the receipt of the land. The gain is then the fair value of the land ($16,000) minus the remaining basis (which is zero after the cash distribution), resulting in a $16,000 gain. However, since the question asks for the amount and character of Brian's gain or loss on the distribution and given the options provided, none directly reflect this corrected calculation. The closest correct answer based on the options given and the initial explanation would be recognizing a gain due to the distribution exceeding his basis in the partnership. However, the explanation provided does not accurately calculate the gain based on the distribution mechanics and partnership tax rules. The correct answer should reflect the gain on the distribution that exceeds the partner's basis in the partnership interest, but a reevaluation of the calculation is necessary.

Brian Is a 25percent Partner in the BC Partnership