The XYZ Partnership owns the following assets on December 31:

A partner has a 20% interest with a basis of $6,000 in XYZ before receiving a liquidating distribution of $10,000 cash.XYZ Partnership has no liabilities.His recognized gain is

Question

The XYZ Partnership owns the following assets on December 31:

A partner has a 20% interest with a basis of $6,000 in XYZ before receiving a liquidating distribution of $10,000 cash.XYZ Partnership has no liabilities.His recognized gain is

Quizplus · Accepted Answer

The partner has a 20% share in the partnership, which is worth $10,000 cash. Therefore, his share of the partnership is worth $50,000 ($10,000 / 20%).

His basis in the partnership before the distribution was $6,000, so he has a gain of $44,000 ($50,000 - $6,000).

Since this is a liquidating distribution, the partner will recognize any gain as ordinary income first, up to the amount of his basis. In this case, he will recognize $3,000 of ordinary income (up to his $6,000 basis). The remaining $41,000 will be a capital gain.

Therefore, the answer is D) $3,000 ordinary income and $1,000 capital gain.

The XYZ Partnership Owns the Following Assets on December 31