Matt, a partner in the MB Partnership, receives a proportionate, 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 a $6,000 gain, take a $16,000 basis in the property, and his basis in the partnership interest is reduced to zero.

Question

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When a partner receives a proportionate, nonliquidating distribution of property, the partner's basis in the property is equal to the property's basis to the partnership immediately before the distribution. Therefore, Matt's basis in the property would be $23,000, not $16,000. As a result, Matt would have no gain or loss recognized and his basis in the property would be $23,000. His basis in the partnership interest would also be reduced to $0, but this is not affected by the distribution of property.

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