Question

Problem 11-26 (c) (LO. 2)

When Abe's outside basis in the Vacuna Partnership is $211,000, the partnership distributes to him $36,000 cash, three accounts receivable (fair market value of $61,000, inside basis to the partnership of $0), and a parcel of land (fair market value of $484,000, inside basis to the partnership of $420,000). Abe remains a partner in the partnership, and the distribution is proportionate to the partners.

If an amount is zero, enter "0".

a. Does the partnership recognize a gain or loss as a result of this distribution?
No Gain or Loss

b. As a result of the distribution, Abe recognizes neither a gain nor a loss .

c. In what order are the assets distributed to Abe? Cash, accounts receivable, land

Compute Abe's basis in the accounts receivable and land.

Accounts receivable	$
Land	$

Abe's basis in the partnership after the current distribution is $.

Answer 1

a. A partnership recognizes no gain or loss on a distribution that does not alter the partner’s proportionate ownership of hot assets.

b. Abe recognizes no gain or loss on the distribution. Gain is recognized on a non liquidating distribution if the amount of cash or certain marketable securities received exceeds the partner’s outside basis immediately before the distribution.

c. The cash is deemed distributed first and reduces Abe’s outside basis to $175,000. The account receivable is distributed next, and takes a substituted and carryover basis of $0. The land is distributed last and takes a substituted basis of $175,000.The receivable distribution does not change Abe’s outside basis. The value she received was $545,000 (compared to her basis of $175,000)