Question

Ten years ago, Latesha acquired a one-third interest in Dana Associates, a partnership, for $26,000 cash....

Ten years ago, Latesha acquired a one-third interest in Dana Associates, a partnership, for $26,000 cash. This year, Latesha's entire interest in the partnership is liquidated when her basis is $24,000. Dana's assets consist of the following: cash, $20,000; inventory with a basis of $46,000 and an FMV of $40,000. Dana has no liabilities. Latesha receives the cash of $20,000 in liquidation of her entire interest. What is Latesha's recognized loss on the liquidation of her interest in Dana?

Group of answer choices

$4,000 long-term capital loss

$4,000 short-term capital loss and $2,000 ordinary loss

$0

) $4,000 long-term capital loss and $2,000 ordinary loss

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Homework Answers

Answer #1

'$4,000 long-term capital loss' is the correct choice.

Explanation:

Latesha receives $20,000 in cash in the liquidation of her interest acquired ten years ago. While her pre-distribution basis is $24,000. So, it is a long-term capital loss because the pre-distribution basis is more than the amount received on the liquidation of investment of 10 years.

Calculation of Long-term capital loss:

Long-term capital loss = Pre-distribution basis - Amount received

= $24,000 - $20,000

= $4,000

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