Question

The RST Partnership makes a pro rata distribution of its assets to R in complete liquidation of R's partnership interest. The distribution consist of $20,000 in cash and capital assets with a basis to the partnership of $15,000 and a faor ,arlet va;ie pf $30,000. At the time of the distribution, R's partnership basis is $40,000, which is what she paid for the interest one year earlier. If the partnership has no Section 754 election in effect what is R's basis in the property distributed? A If no Section 732 (d) adjustment is made, R's basis in the capital assets is $15,000 B. If no Section 732(d) adjustment is made, R's basis in the capital assets is $20,000. C. If no Section 732(d) adjustment is made, R's basis in the capital assets is $35,000. D. If no Section 732(d) adjustment is made, R's basis in the capital assets is $40,000.

Answer 1

ANSWER:  

The correct option is d.) No gain or loss and decreases the basis of its remaining assets by $40,000.

In complete liquidation of partner's interest, the distribution of money in excess of partnership basis is to be recognised as gain or loss otherwise no gain or loss is recognized and the basis to a partner of property distributed in kind is equal to adjusted basis of the partner's interest reduced by any cash distributed to the partner in the same transaction.

Therefore in the given case the money distributed is $40,000 which is less than the partnership basis of $150,000, thus there will be no gain or loss. The adjusted basis of capital asset is to be reduced by cash received of $40,000.

Thus the basis of remaining assets will be decreased by $40,000