Anthony's basis in the WAM Partnership interest was $200,000 just before he received a proportionate liquidating distribution consisting of investment land (basis of $90,000, fair market value $100,000), and inventory (basis of $30,000, fair market value $70,000). After the distribution, Anthony's recognized gain or loss and his basis in the land and inventory are:
A) $80,000 loss; $90,000 (land); $30,000 (inventory).
B) $70,000 loss; $100,000 (land); $30,000 (inventory).
C) $30,000 loss; $100,000 (land); $70,000 (inventory).
D) $0 gain or loss; $170,000 (land); $30,000 (inventory).
E) None of the above.

Question

Quizplus · Accepted Answer

In a proportionate liquidating distribution, Anthony's basis in the partnership interest is allocated to the distributed assets. The total basis of the distributed assets ($90,000 land + $30,000 inventory = $120,000) is less than Anthony's basis in the partnership ($200,000), so no gain or loss is recognized. The basis in the land and inventory is adjusted to use up Anthony's entire basis in the partnership, resulting in $170,000 for the land and $30,000 for the inventory.

Anthony's Basis in the WAM Partnership Interest Was $200,000 Just