Question

**15. Dalia has a 25% interest in the DQ partnership. Her
outside basis is $500. The partnership liquidates distributing to
Dalia $300 in cash and inventory with an inside basis of
$125.**

**a. Does Dalia recognize gain or loss on the
distribution? If yes, how much gain or loss and what is the
character?**

**b. What Dalia’s basis is in the inventory**

16. Suppose Dalia from the previous problem receives $300 in cash but the inside basis of the inventory is $250. Her outside basis is still $500. Does Dalia recognize gain or loss (if so how much) and what is her basis in the inventory?

Answer #1

15 a) A partner cannot recognize any gain from any distribution of cash or kind provided the distribution doesn’t exceed the partner’s outside basis. |

In the given case, Dalia’s outside basis is $500 |

Dalia is in the receipt of Cash $300 and Inventory with inside basis of $125, totaling to $425. So there’s no gain recognized. |

Loss = $500 - $425 = $75 |

A partnership distribution is not shown in the tax return. If any gain or loss arises out of it then it must be shown in the partner’s return. |

b) Dalia’s basis in the inventory is $125 |

16) Dalia’s outside basis: $500. Basis on the transferred property: $300 (Cash) + $250 (Inventory) = $550 |

There is a gain of $50 ($550 - $500) to be recognized by Dalia in the year of receipt. |

Her basis in the inventory: $250 |

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e....

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