Question

Gary's basis in his interest in the GAR Partnership is $24,000. In complete liquidation fo his interest, Gary receives cash of $4,000 and land having a FMV of $40,000 and an inside basis of $15,000. a. How much gain or loss, if any, does Gary recognize for tax purposes b. What is Gary's basis in the land after distribution?

Answer #1

As per the standard in the event of liquidation if the cash distributed by the partnership firm is less than the basis of partnership , then no gain or loss is to be recognised by the partner. Also the property received by the partner will be calculated on the inside basis only.

In the given case cash distributed by the firm is 4,000 and basis of partnership is 24,000 , as the cash is less than basis of partnership therefore no gain or loss is to be recognised by the partner. If the partner later on sells the land at FMV then he will recognise gain of 40,000 - 15,000 = 25,000.

The remaining amount of basis is to be allocated to the basis of land i.e. 24,000 - 4,000 = 20,000 is to be allocated to the basis of land. And Gary will recognise the land at 15,000 only.

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