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

Question

Quizplus · Accepted Answer

Tyson's basis in KT is $20,000. The total distribution he receives is $32,000 ($16,000 cash + $16,000 land). Since the distribution exceeds his basis by $12,000, he recognizes a gain. However, the gain is not recognized immediately because the distribution includes land, which is a non-cash asset. Tyson's basis in the land will be adjusted to $0, and there is no immediate gain or loss recognized.

Tyson Is a 25% Partner in the KT Partnership