Generally, no gain is recognized on a proportionate liquidating or nonliquidating distribution of non-cash property even if the fair market value of property distributed exceeds the partner's basis in the partnership interest.

Question

Quizplus · Accepted Answer

This is known as the "hot assets" rule and applies to non-cash property distributed to a partner in a liquidating or nonliquidating distribution. The partner's basis in the distributed property is equal to its fair market value and any gain would be recognized when the partner sells or disposes of the property.

Generally, No Gain Is Recognized on a Proportionate Liquidating or Nonliquidating