Matt receives a proportionate nonliquidating distribution. At the beginning of the partnership year, the basis of his partnership interest is $60,000. During the year, he received a cash distribution of $25,000 and a property distribution (basis of $20,000 and fair market value of $12,000). In addition, Matt's share of partnership liabilities was reduced by $20,000 during the year. How much gain or loss does Matt recognize; what is his basis in the property he received; and what is his remaining basis in the partnership interest?
A) $3,000 loss; $12,000 basis in property; $0 remaining basis.
B) $0 gain or loss; $15,000 basis in property; $0 remaining basis.
C) $0 gain or loss; $20,000 basis in property; $15,000 remaining basis.
D) $0 gain or loss; $12,000 basis in property; $23,000 remaining basis.
E) $5,000 gain; $20,000 basis in property; $0 remaining basis.

Question

Quizplus · Accepted Answer

Matt recognizes no gain or loss because the distribution does not exceed his basis. His basis in the property is the lesser of the partnership's basis in the property ($20,000) or his remaining basis after the cash distribution and liability reduction ($15,000). His remaining basis in the partnership is $0 after the distribution.

Matt Receives a Proportionate Nonliquidating Distribution