In a proportionate liquidating distribution in which the partnership is also liquidated,Rosie received cash of $20,000 and inventory (basis of $12,000 and fair market value of $17,000).Immediately before the distribution,Rosie's basis in the partnership interest was $50,000.Rosie recognizes a loss of $18,000,and her basis in the inventory is $12,000.

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Rosie received a cash distribution of $20,000 and inventory with a fair market value of $17,000 but a basis of only $12,000. This means she recognizes a loss of $5,000 ($17,000 FMV - $12,000 basis). Her loss on the partnership interest is calculated by subtracting the cash received from her basis in the partnership interest: $50,000 - $20,000 = $30,000 loss. However, since the loss recognized ($5,000) is less than the total loss ($30,000), Rosie's basis in the inventory is reduced to $12,000 and her basis in the partnership interest is reduced to $0. The loss of $18,000 is suspended and can be carried forward to future tax years.

In a Proportionate Liquidating Distribution in Which the Partnership Is