Sarah is a 50percent partner in the SF Partnership and has an outside basis of $56,000 at the end of the year prior to any distributions. On December 31, Sarah receives a proportionate operating distribution of $20,000 cash. What is the amount and character of Sarah's recognized gain or loss and what is her basis in her partnership interest?

Question

Quizplus · Accepted Answer

In a partnership, cash distributions do not trigger a gain unless the cash received exceeds the partner's outside basis in the partnership. Since Sarah's outside basis was $56,000 and she received a $20,000 distribution, she recognizes no gain. Her basis would be reduced by the amount of the distribution, resulting in a new basis of $36,000.

Sarah Is a 50percent Partner in the SF Partnership and Has