In a proportionate liquidating distribution, Alexandria receives a distribution of $70,000 cash, accounts receivable (basis of $0 and fair market value of $20,000), and land (basis of $30,000 and fair market value of $60,000). In addition, the partnership repays all liabilities, of which Alexandria's share was $40,000. Alexandria's basis in the entity immediately before the distribution was $90,000. As a result of the distribution, what is Alexandria's basis in the accounts receivable and land, and how much gain or loss does she recognize?
A) $0 basis in accounts receivable; $0 basis in land; $20,000 gain.
B) $0 basis in accounts receivable; $30,000 basis in land; $0 gain or loss.
C) $0 basis in accounts receivable; $0 basis in land; $0 gain or loss.
D) $0 basis in accounts receivable; $30,000 basis in land; $0 gain.
E) $20,000 basis in accounts receivable; $0 basis in land; $20,000 gain.

Question

Quizplus · Accepted Answer

The basis of the accounts receivable is $0 because it had a basis of $0 to the partnership. The basis of the land is $30,000 because it had a basis of $30,000 to the partnership. The gain recognized is $20,000 because the fair market value of the land ($60,000) exceeds its basis ($30,000).

In a Proportionate Liquidating Distribution, Alexandria Receives a Distribution of $70,000