Sam receives a proportionate nonliquidating distribution when the basis of his partnership interest is $40,000.He received a cash distribution of $25,000 and a property distribution (basis of $10,000 and fair market value of $12,000).In addition,Sam's share of partnership liabilities was reduced by $20,000 during the year.How much gain or loss does Sam recognize;what is his basis in the property he received;and what is his remaining basis in the partnership interest?
A)$0 gain or loss;$10,000 basis in property;$5,000 remaining basis.
B)$0 gain or loss;$12,000 basis in property;$3,000 remaining basis.
C)$5,000 gain;$0 basis in property;$0 remaining basis.
D)$5,000 gain;$0 basis in property;$5,000 remaining basis.
E)$17,000 gain;$12,000 basis in property;$0 remaining basis.

Question

Quizplus · Accepted Answer

Sam recognizes a gain of $5,000 because the cash distribution ($25,000) plus the liability reduction ($20,000) exceeds his partnership basis ($40,000) by $5,000. The basis in the property is reduced to $0 because the remaining basis after the gain is $0.

Sam Receives a Proportionate Nonliquidating Distribution When the Basis of His