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

Answer: Harrison will acknowledge a gain equal to the difference between his basis and the distribution . This is because he receives only money in the distribution and the amount transcend his basis in KH. He further allot his entire basis in KH to the basis in the money received resulting in $0 basis in KH after the distribution.

∴ The capital gain will be $6000 i.e. (50000 - 44000) and $0 basis.