Question

On December 31, 2018, AR Partnership makes a distribution to Jack that consists of $100,000 cash and assets that were being held for investment purposes with a FMV of $125,000 and an adjusted inside basis of $75,000. Jack has a pre-distribution basis of $120,000.

What is Jack’s gain or loss from the distribution? What is AR’s gain or loss from the distribution?

can you identify what's outside and inside basis in this question?

(apparently the answer is 0 but can you walk me through why?)

appreciate it!

Answer 1

There are two types of tax bases concerning partnerships.

The inside basis is the partnership's tax basis in the indivisual assets. The outside basis is the tax basis of each indivisual partner's interest in partnershp.

In, the given problem partnership's inside basis in its asstes is $ 75, 000. However, when a partner contributes property to the partnership, the partnership inside basis is always the FMV of the property.

Here, outside basis of Jack in the partnership is linked to $ 120, 000 i.e Jack's stake in the partnership is $ 120, 000 and anything above received by him from partnership is his gain.