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Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes a proportionate...

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes a proportionate liquidating distribution of $20,000 cash and inventory with a $15,000 fair value (inside basis $5,000) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD partnership interest is $21,000. What is the amount and character of Daniela's gain or loss from the distribution? A) $0. B) $14,000 ordinary income. C) $4,000 capital loss. D) $4,000 capital gain. Please explain reasoning and steps.

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Answer #1
A) $0
Daniela will not recongnize any gain or loss on the distribution. She will reduce the basis of inventory at the complete liquidation of assets.
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