At the beginning of the current year, Harrison's adjusted basis in FLM Partnership is $50,000. During the year, Harrison receives a cash distribution of $25,000. How much income must Harrison recognize because of the cash received?
A)$- 0 -
B)$10,000
C)$15,000
D)$20,000
E)$25,000

Question

Quizplus · Accepted Answer

Harrison must recognize $0 in income from the cash distribution because cash distributions from a partnership to a partner are generally not taxable as long as the distribution does not exceed the partner's adjusted basis in the partnership. Since Harrison's adjusted basis is $50,000 and the distribution is $25,000, it does not exceed his basis, thus no income is recognized.

At the Beginning of the Current Year, Harrison's Adjusted Basis