Question

3. (55 points) The adjusted basis of Peter Palmer's partnership interest is $50,000. In complete liquidation of his interest in the partnership, Peter receives $15,000 in cash, inventory items having a basis to the partnership of $20,000 and a fair market value of $22,000, and two parcels of land.. Parcel I has an adjusted basis to the partnership of $18,000 and a fair market value of $15,000 and Parcel II has an adjusted basis to the partnership of $12,000 and a fair market value of $10,000. A. What is Peter's basis in each of the distributed assets? B. What is Peter's recognized gain or loss on the distribution? C.What is the partnership's recognized gain or loss on the distribution?

Answer 1

1. The total basis of the distributed properties is $50,000 ($20,000 + $30,000 (2 parcels of Land)), Peter’s remaining outside basis after reduction for money received is $35,000 ($50,000-$15,000). Thus, Peter’s must take basis in the properties is $35,000, and so Peter is required to reduce the basis of distributions from $50,000 to $35,000.
2. Peter recognizes no gain on the distribution because the cash received ($15,000) does not exceed Peter’s basis in his partnership interest ($50,000).
3. Value of distributions = 15,000 + 20,000 + 18,000 + 12,000 = 65,000 Realized value of distributions = 15,000 + 22,000 + 15,000 + 10,000 = 62,000 Hence, the Partnership’s recognized loss is $ 12,000 (62,000 – 50,000)