Question

In a proportionate liquidating distribution, Arline receives a distribution of $40,000 cash, accounts receivable (basis of $0 and fair market value of $20,000), and land (basis of $20,000 and fair market value of $30,000). In addition, the partnership repays all liabilities, of which Arline's share was $40,000. Arline's basis in the entity immediately before the distribution was $50,000. As a result of the distribution, what is Arline's basis in the accounts receivable and land, and how much gain or loss does she recognize

Answer 1

Answer:$0 basis in Account Receivable $30,000 basis in land and $30,000 loss

Explanation:

Basis before the distribution =$50,000

Cash Received = $40,000

Share of liabilities =$40,000

To calculate the basis in the Account Receivable and land and how much gain or loss does she recognize

= Partnership basis - Cash Received - Share of liabilities paid

($50,000 -$40,000 - $40,000)

= ($30,000)

Therefore Arline basis in the Account Receivable $0, $30,000 basis in land and $30,000 loss