Anthony's basis in the WAM Partnership interest was $200,000 just before he received a proportionate liquidating distribution consisting of investment land (basis of $90,000, fair market value of $100,000), and inventory (basis of $30,000, fair market value of $70,000). After the distribution, Anthony's recognized gain or loss and his basis in the land and inventory are:
A) $80,000 loss; $90,000 (land); $30,000 (inventory).
B) $70,000 loss; $100,000 (land); $30,000 (inventory).
C) $30,000 loss; $100,000 (land); $70,000 (inventory).
D) $30,000 loss; $90,000 (land); $30,000 (inventory).
E) $0 gain or loss; $170,000 (land); $30,000 (inventory).

Question

Quizplus · Accepted Answer

In a proportionate liquidating distribution, Anthony's basis in the partnership interest is allocated to the distributed assets. The total basis of the distributed assets (land and inventory) is $120,000 ($90,000 + $30,000). Since Anthony's basis in the partnership was $200,000, he will not recognize any gain or loss, and the basis in the land will be increased to $170,000 to account for the remaining basis.

Anthony's Basis in the WAM Partnership Interest Was $200,000 Just