Catherine is a 30% partner in the ACW Partnership with an outside basis of $20,000. ACW distributes land with a basis of $12,000 and fair value of $18,000 to Catherine in complete liquidation of her interest. Catherine recognizes a capital loss of $2,000 on the distribution.
No loss recognition since asset distributed is not cash or hot assets.

Question

Quizplus · Accepted Answer

The statement is incorrect. Although the asset distributed is land, not cash or hot assets, Catherine still recognizes a capital loss of $2,000 because her outside basis ($20,000) is higher than the fair value of the land ($18,000).

Catherine Is a 30% Partner in the ACW Partnership with an Outside