Question

1. Wilma Clay and Nathan are equal partners in the cousins partnership. At the end of the year, Wilma's tax basis in her partnership interest was $14,000, clay's basis was $25,000 and Nathan’s basis $8,000. In a non-liquidating distribution, the partnership distributed investment property to Clay with a tax basis of $18,000 and a fair market value of $45,000.

a)How much gain must Clay recognize on receipt of the distribution?

b) What basis will he take ii the property received from the partnership?

c) What will be his remaining basis in the partnership interest?

2. Wayne, a one-third partner in the Count’em partnership, received investment property worth $100,000 in redemption (i.e, partial liquidation) of half his interest. The partnership’s tax basis in the investment property was $48,000. Wayne’s tax basis in his partnership interest prior to the distribution was $40,000.

a) Will Wayne be required to recognize any gain or loss on receipt of the distribution from the partnership?

b) What will be his tax basis in the property received?

c) What will be his remaining basis in his partnership interest?

Answer 1

1.

	Wilma	Clay	Nathan
basis	14000	25000	8000
tax basis		18000
fair market value		45000

a. Clay must recognise no gain on receipt of distribution

b. Clay will take the basis of 18000 for the property received from the partnership

c. His remaining basis in the partnership interest wil be 0

2. a. No, Wayne will not be required to recognize any gain or loss on receipt of the distribution from the partnership until he sells his interest. After that, he will be required to recognise a gain of $8,000 (48000-40000).

b. His tax basis in the property received will be $40,000

c. His remaining basis in his partnership interest will be 0