Partner Jordan received a distribution of $90,000 cash from the JKL Partnership in complete liquidation of his partnership interest.If Jordan's outside basis immediately before the distribution was $80,000,and if the partnership has made (and not revoked)a § 754 election in a prior year,which of the following statements is true? (Assume the partnership owns no "hot assets.")
A)The partnership will step-down the basis of its assets by $10,000.
B)The partnership will step-up the basis of its assets by $10,000.
C)Jordan will recognize a $10,000 capital gain on the distribution.
D)Both a.and c.are true.
E)Both b.and c.are true.

Question

Quizplus · Accepted Answer

Since the partnership has made a § 754 election, the basis of the partnership assets will be adjusted to their fair market value on the date of the distribution. Jordan's basis in his partnership interest is $80,000, which is lower than the amount of cash he received ($90,000). Therefore, Jordan will recognize a capital gain of $10,000 on the distribution. Since the basis of the partnership assets is stepped up, the correct choice is (E): Both b. and c. are true.

Partner Jordan Received a Distribution of $90,000 Cash from the JKL