Question

Chelsea owns a 25% capital and profits interest in the calendar-year CJDV Partnership.

adjusted basis for her partnership interest on July 1 of die current year is $170,000. On that date,

she receives a proportionate nonliquidating distribution of the following assets:

Asset's Fair Market Value Partllership s Basis in Asset

Cash 90,000 $ 90,000

Inventory 1 10,000 140,000

Land (held for investment) 100,000 160,000

-Calculate Chelsea's recognized gain or loss on the distribution, if any.

-Calculate Chelsea's basis in the inventory received.

-Calculate Chelsea's basis in land received. The land is a capital asset.

-Calculate Chelsea's basis for her partnership interest after the distribution.

Answer 1

a) $80,000 (gain)

Explanation: Because a cash distribution of 90,000 exceeds her outside basis in partnership by $80,000 (170000-90000). Therefore, $80,000 will be recognized as a gain.

b) $0 (Zero)

As after distributing cash, Chelsea has no outside balance. Therefore, the basis in inventory will zero.

c) Zero

Because of no remaining balance in her partnership interest.

d) Zero

Because of no remaining balance in her partnership interest. Therefore, Zero bases for her partnership interest.