Question

Tom is a partner in TXY partnership. His adjusted basis in the partnership is $30,000. During the year, he receives the following distributions:

                                                            AB                              FMV

Cash                                                    $25,000                       $25,000

Property                                              $25,000                       $50,000.

These are non-liquidating, proportionate, pro-rata distributions.

a. What gain, if any, must Tom recognize on these distributions?

b. What is Tom’s basis in the property?

Answer 1

a) In this problem the adjusted basis is $30,000.

When it comes to cash the adjusted basis is $25,000 and the outstide adjusted basis is $30000, so there is a loss of $5000($3000-$25000) and the FMV is also the same $25000. So in cash no gain only loss.

When it comes to property, the adjusted basis is $30000. The FMV is $50000. But as the adjusted basis is $3000, there is a gain of $20000($50000-$30000). So there is a gain interms of property.

b) Tom bais is propery is $20000. This is derived from adjusted basis minus the FMV. So that comes to $20000.