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:

$0 gain or loss

Cash basis $10,000

Inventory $15,000

Explanation:

Calculation for Mia’s recognized gain or loss on the liquidation and basis in the property received

First step is for us to calculate for the 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 theGain 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)

Based on the above calculation for Mia Gain/loss in which Mia had ($5,000) this means there is $0 gain or loss

Third step is to calculate for the Inventory

Using this formula

Inventory = Cash + Gain/Loss

Let plug in the formula

Inventory =$10,000 + $5,000

Inventory = $15,000

In summary Mai will have $0 gain or loss, the Cash basis amount will be $10,000 while the Inventory amount will be $15,000