Terri's basis in her partnership interest was $120,000,including her $40,000 share of partnership liabilities.The partnership decides to liquidate,and after repaying all liabilities,distributes all remaining assets proportionately to the partners.Terri receives $30,000 cash and accounts receivable with a $20,000 basis and a $22,000 fair market value to the partnership.What gain or loss does Terri recognize,and what is her basis in the accounts receivable?
A)$0 gain or loss;$20,000 basis.
B)$0 gain or loss;$90,000 basis.
C)$70,000 loss;$20,000 basis.
D)$30,000 loss;$20,000 basis.
E)$30,000 loss;$22,000 basis

Question

Quizplus · Accepted Answer

To calculate the gain or loss on the sale of the partnership interest, we need to compare the cash and fair market value of the assets received to Terri's adjusted basis in the partnership interest.

The total assets received by Terri are $30,000 cash + $22,000 fair market value of accounts receivable = $52,000

Terri's adjusted basis in the partnership interest is $120,000 - $40,000 (share of liabilities) = $80,000

Therefore, Terri has a loss of $28,000 ($80,000 - $52,000) on the sale of her partnership interest. This loss is recognized for tax purposes.

To determine the new basis in the accounts receivable, we need to subtract the loss recognized from the fair market value received:

$22,000 fair market value - $28,000 loss = $(-6,000)

The basis in the accounts receivable cannot be negative, so Terri's new basis in the accounts receivable is zero.

Overall, the answer is D: Terri has a $28,000 loss on the sale of her partnership interest, and her basis in the accounts receivable is zero.

Terri's Basis in Her Partnership Interest Was $120,000,including Her $40,000