Question

Kristen and Harrison are equal partners in the KH Partnership. The partners formed the partnership 5 years ago by contributing cash. Prior to any distributions, Harrison has a basis in his partnership interest of $44,000. On December 31, KH makes a proportionate operating distribution of $50,000 cash to Harrison. What is the amount and character of Harrison's recognized gain or loss and what is his remaining basis in KH?

Answer 1

Harrison would have a gain of $6,000 and his remaining basis in KH would now be $0.

Step-by-step explanation:

For Harrison to have a gain , the amount of cash that he receives from operating distribution by KH should be more than his basis in partnership, which is the actual case here, as his basis is $44,000 and cash he receives from distribution is $50,000, so therefore he has a gain of $6,000 ($50,000 - $44,000).

Since Harrison has allocated his entire basis in the KH , his has no basis left now, so therefore after the operating distribution he has $0 basis left in the KH.