Toni's basis in her partnership interest was $60,000,including her $50,000 share of partnership liabilities.The partnership decides to liquidate,and after repaying all liabilities,distributes all remaining assets proportionately to the partners.Toni receives $20,000 cash and accounts receivable with a $12,000 basis and a $14,000 fair market value to the partnership.What gain or loss does Toni recognize,and what is her basis in the accounts receivable?

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The partnership's repayment of liabilities is treated as a cash distribution to Toni of $50,000.Combined with the $20,000 cash actually distributed,Toni is deemed to receive a cash distribution of $70,000,which exceeds her basis in her partnership interest by $10,000.Therefore,she must report a gain of $10,000.The accounts receivable will have a $0 substituted basis,since she has no remaining basis in her partnership interest to allocate to the receivables.

Toni's Basis in Her Partnership Interest Was $60,000,including Her $50,000