Question

Daniela is a 25% partner in the JRD Partnership. On January 1, JRD makes a proportionate, liquidating distribution of $16,000 cash, inventory with a $16,000 fair value (inside basis $8,000), and accounts receivable with a fair value of $8,000 (inside basis of $12,000) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD partnership interest is $20,000. What is the amount and character of Daniela's gain or loss from the distribution?

1. $0
2. $16,000 ordinary income
3. $16,000 capitol gain
4. $20,000 capitol gain

Answer 1

Here the correct option is 1) $0.

Step-by-step explanation:

Here Daniela will not recognize any gain because in the operating distribution, JRD partnership has not distributed money in an amount that is greater than Daniela's basis in the partnership interest and since a partner will never recognize a loss from partnership distribution , then Daniela will focus on reducing the basis of inventory she has received in the liquidation of her interest.