Question

Please read the following carefully. For each question, you should assume that:

1.          unless expressly stated to the contrary, all events occurred in “the current taxable year;”

2.          all persons are United States citizens;

3.          there is no tax avoidance purpose for any transaction, and that with respect to any mortgage on any property, there was a bona fide business purpose for incurring or assuming the debt;

4.          unless expressly stated to the contrary, the partnership has no hot assets, has no debts or other liabilities, and does not have a Section 754 election in effect;

5.          each partnership is a general partnership;

6.          there are no special allocation provisions contained in any partnership agreement; and

7.         unless expressly stated to the contrary, or the context of the question requires a conclusion that the distribution was not pro rata - such as the liquidation of the interest of just one partner, all partnership distributions were pro rata.

8.            All taxpayers are calendar year taxpayers.

Q1.         In the current year, Sue received a liquidating distribution of real estate from UTSRQ Partnership, a general partnership.  The real estate had an adjusted basis to the partnership of $35,000 and a fair market value of $90,000 on the date of the distribution. Sue’s adjusted basis in her 20 percent interest in UTSRQ Partnership was $50,000.  How much gain or loss did Sue recognize on receipt of the distribution and what is her basis in the real estate?

a.         0  gain or loss recognized and a $50,000 basis in the real estate.

b.         ($15,000) loss recognized and a $35,000 basis in the real estate.

c.          0 gain or loss recognized and a  $35,000 basis in the real estate.

d.         $40,000 gain recognized and a $90,000 basis in real estate.

e.          $15,000 gain recognized and a $50,000   basis in real estate.

Answer 1

Answer to the question

e.          $15,000 gain recognized and a $50,000   basis in real estate

Explanation: Amount for 20 percent stake is 50000 less adjusted basis to partnership is35000, hence gain is $15000 and moreover 20 percent stake in real estate is 50000