Question

49-Pettifog Partnership distributes cash of $20,000, hot assets worth $5,000, and a parcel of land in a liquidating distribution to Li, a partner. The hot assets have a basis of $0 to the partnership. The land has a fair market value of $80,000 and an inside basis of $55,000. Li’s outside basis in Pettifog just prior to the distribution is $85,000. What amount of gain or loss, if any, must Li recognize and what is Li’s resulting basis in the land?

Multiple Choice

• Gain or Loss	Basis in land
  $5,000 loss	$0

• Gain or Loss	Basis in land
  $0	$60,000

• Gain or Loss	Basis in land
  $0	$65,000

• Gain or Loss	Basis in land
  $10,000 loss	$0

Answer 1

Answer :-

The Correct Answer is - Gain or Loss $0 , Basis in Land $65,000

Explanation :-

In the question it was given that , Li’s outside basis in Pettifog just prior to the distribution is $85,000 and Pettifog Partnership distributes cash of $20,000.

Li will adjusted the outside basis with the Cash .

Here we have not taken the hot Assets for adjustment basis as hot assets have a basis of $0 to the partnership.

Therefore, Li Basis in Land is $65,000 ( = $85,000 - $20,000)

There is no amount of Gain or Loss Li recognized as it received his outside basis in form of land , Cash and Hot Assets.

Thus , The Correct Answer is Gain or Loss $ 0 , Basis in Land $65,000.