Question

Sarah is a 50 percent partner in the SF Partnership and has an outside basis of $56,000 at the end of the year prior to any distributions. On December 31, Sarah receives a proportionate operating distribution of $20,000 cash. What is the amount and character of Sarah's recognized gain or loss and what is her basis in her partnership interest?

Answer 1

Answer: A. $0 gain, $36,000 basis

Explanation:

Sarah will recognize no profit or loss on this distribution.

She will then adjust her basis based on the amount of cash that she received which is $20,000.

She will adjust her basis such that the $20,000 will be the result if she subtracts new her basis from the old one so,

= 56,000 - 20,000

= $36,000

If you need any clarification do comment. Cheers.

Answer 2

Answer:

A. $0 gain, $36,000 basis

Explanation:

In the distribution, from the information given, Sarah does not recognize any gain or loss.

However, given that

She had $56000 basis at end of year prior to distribution.

Then receives $20000 from distribution after reallocating her basis in SF to cash in amount equal to distribution

Therefore,

Her basis left = 56000 - 20000

= $36000