Atiqa receives a nonliquidating distribution of land from her partnership.The partnership purchased the land five years ago for $20,000.At the time of the distribution,it is worth $28,000.Prior to the distribution,Atiqa's basis in her partnership interest is $37,000.Due to the distribution Atiqa and the partnership will recognize income of

Question

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When a nonliquidating distribution of property is made, the partner receiving the distribution takes over the property's partnership basis. Atiqa's basis in her partnership interest is $37,000, which is higher than the fair market value of the distributed land ($28,000). Thus, she will recognize a loss of $9,000 (her basis minus the FMV of the land received). The partnership will not recognize any gain or loss on the distribution. Therefore, the correct answer is (C) $9,000 loss to Atiqa, with no income recognized by the partnership.

Atiqa Receives a Nonliquidating Distribution of Land from Her Partnership