Matt, a partner in the MB Partnership, receives a proportionate, current (nonliquidating) distribution of property having a fair market value of $16,000 and a partnership basis of $23,000. Matt's basis in the partnership is $10,000 before the distribution. In this situation, Matt will recognize no gain or loss. He takes a $10,000 basis in the property, and his basis in the partnership interest is reduced to zero.

Question

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In a nonliquidating distribution, a partner does not recognize gain or loss on the receipt of property. Matt's basis in the distributed property is limited to his basis in the partnership interest before the distribution, which is $10,000. His basis in the partnership interest is reduced by the basis of the property received, effectively reducing it to zero.

Matt, a Partner in the MB Partnership, Receives a Proportionate