Randi owns a 40% interest in the capital and profits of the RAY Partnership. Immediately before she receives a proportionate current (nonliquidating) distribution from RAY, the basis for her partnership interest is $60,000. The distribution consists of $45,000 in cash and land with a fair market value of $72,000. RAY's adjusted basis in the land immediately before the distribution is $36,000. As a result of the distribution, Randi recognizes a gain of $57,000.

Question

Quizplus · Accepted Answer

Randi does not recognize any gain from a proportionate nonliquidating distribution. Her basis in the partnership interest is first reduced by the cash received ($60,000 - $45,000 = $15,000), then by the adjusted basis of the land ($15,000 - $36,000 = -$21,000). Since the basis cannot go below zero, it stops at $0, and the excess reduction does not result in recognized gain but adjusts the basis of the land received.

Randi Owns a 40% Interest in the Capital and Profits