Question

# 49-Pettifog Partnership distributes cash of \$20,000, hot assets worth \$5,000, and a parcel of land in...

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

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.

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