Question

Kristen and Harrison are equal partners in the KH Partnership. The partners formed the partnership five...

Kristen and Harrison are equal partners in the KH Partnership. The partners formed the partnership five years ago by contributing cash. Prior to any distributions Harrison has a basis in his partnership interest of $28,500. On December 31, KH makes a proportionate operating distribution of $41,500 cash to Harrison. What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH?

Multiple Choice

  • $0 gain, $0 basis.

  • $13,000 capital gain, $0 basis.

  • $13,000 capital loss, $0 basis.

  • $13,000 capital gain, $28,500 basis.

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Answer #1

Ans:

Harrison basis in partnership interest prior to distriution : $28,500

Operating Distribution to Harrison on 31 December : $41,500

Capital Gain for Harrison : Operating Distribution - Basis in partnership interest

: $41,500 - $28,500 = $13,000

His remaining basis in KH : $0 (because he has already adjusted his basis from Operating Distribution)

So Correct answer is option B.

$13,000 capital gain, $0 basis.

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