Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes a liquidating distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000), and accounts receivable with a fair value of $8,000 (inside basis of $12,000) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in JRD is $20,000. What is the amount and character of Daniela's gain or loss from the distribution?

Question

Quizplus · Accepted Answer

Daniela's basis in JRD is $20,000. The total distribution she receives is $16,000 cash + $16,000 inventory + $8,000 accounts receivable = $40,000 fair value. However, the inside basis of the distributed assets is $8,000 (inventory) + $12,000 (accounts receivable) = $20,000. Since the distribution does not exceed her basis, there is no gain or loss.

Daniela Is a 25% Partner in the JRD Partnership