Aaron owns a 30% interest in a continuing partnership. The partnership distributes a $35,000 year-end cash bonus to all the partners. In a proportionate nonliquidating distribution, the partnership also distributed property (basis of $15,000; fair market value of $20,000) to Aaron. Immediately before the distribution, Aaron's basis in the partnership interest was $50,000. As a result of the distribution, Aaron recognizes:
A) No gain or loss.
B) Ordinary loss of $5,000.
C) Capital loss of $5,000.
D) Ordinary gain of $5,000.
E) Capital gain of $5,000.

Question

Quizplus · Accepted Answer

In a nonliquidating distribution, a partner generally does not recognize gain or loss. Aaron's basis in the partnership interest is reduced by the cash and the basis of the property received, but no gain or loss is recognized.

Aaron Owns a 30% Interest in a Continuing Partnership