Mirabelle contributed land with a $5,000 basis and a $9,000 FMV to MS Partnership four years ago. This year the land is distributed to Sergio, another partner in the partnership. At the time of distribution, the land had a $12,000 FMV. How much gain should Mirabelle and Sergio recognize?

Question

Quizplus · Accepted Answer

When property is distributed from a partnership, each partner takes a portion of the adjusted basis of partnership property. Mirabelle's basis in the property is $5,000, and since there is no indication that she took any depreciation or made any other adjustments to the basis, her adjusted basis in the partnership would be $5,000. Sergio's basis in the distributed property would be the amount of Mirabelle's adjusted basis that he received, which would be $5,000. The gain recognized by Mirabelle would be the FMV of the property minus her adjusted basis, or $12,000 - $5,000 = $7,000. The gain recognized by Sergio would be the difference between his share of the partnership's adjusted basis (which we know to be $5,000) and the FMV of the property he received, or $5,000 - $12,000 = ($7,000), which is a loss. However, partners cannot recognize losses on property distributions from a partnership, so Sergio's recognized gain would be zero. Therefore, the total recognized gain for Mirabelle and Sergio would be $7,000.

Mirabelle Contributed Land with a $5,000 Basis and a $9,000