Barry owns a 25% interest in a continuing partnership.The partnership distributes a $20,000 year-end cash bonus to all the partners.In a proportionate nonliquidating distribution,the partnership also distributed property (basis of $2,000;fair market value of $3,000)to Barry.Immediately before the distribution,Barry's basis in the partnership interest was $30,000.As a result of the distribution,Barry recognizes:
A)No gain or loss.
B)Ordinary loss of $7,000.
C)Capital loss of $7,000.
D)Ordinary loss of $8,000.
E)Capital loss of $8,000.

Question

Quizplus · Accepted Answer

The cash bonus is not taxable because it is a nonliquidating distribution. The property distribution results in a capital loss of $7,000 ($3,000 FMV - $2,000 basis).

Barry Owns a 25% Interest in a Continuing Partnership