Question

Mia has an outside basis of $50,000 in the Brimstone Partnership, including her share of liabilities of $25,000. In a liquidating distribution, she receives cash of $10,000 and inventory worth $8,000 (inside basis to Brimstone of $20,000). What is Mia's recognized gain or loss on the liquidation and basis in the property received

Answer 1

Answer:

No gain or loss, Cash basis $10,000, Inventory $15,000

Explanation:

Calculation for Mia’s recognized gain or loss

First step is to calculate for Mia outside adjusted basis

Using this formula

Outside adjusted basis=Outside basis - Liabilities

Let plug in the formula

Outside adjusted basis=$50,000 - $25,000

Outside adjusted basis= $25,000

Second step is to calculate for Mia Gain or loss

Using this formula

Gain/Loss=Outside adjusted basis- Cash received - Inside basis

Let plug in the formula

Gain/Loss =$25,000 -$10,000 -$20,000

Gain/Loss = ($5,000)

Since Mia had ($5,000) this means Mia has no gain or loss

Last step is to calculate for Mia Inventory

Using this formula

Inventory = Cash + Gain/Loss

Let plug in the formula

Inventory =$10,000 + $5,000

Inventory = $15,000

Therefore Mai has NO gain or loss, Cash basis amount of $10,000 and Inventory amount of $15,000