B is corrent. The requirement is to determine Smith’s basis for the real estate received in complete liquidation of the EVA partnership. Generally, neither a partnership nor a distribute partner will recognize gain or loss on proportionate distributions in complete liquidation of a partnership. As a result, a partner’s basis for distributed property is generally the same as the partnership’s former basis for the property. However, since a distribution cannot reduce the basis for a partner’s partnership interest below zero, the distributed property’s basis to the partner is limited to the partner’s basis for the partnership interest before the distribution. Here, Smith’s partnership basis of $230,000 is first reduced by the $150,000 of cash received, to $80,000, which then becomes the basis of the real estate to Smith.
A is incorrect. The real estate’s basis is limited to the basis that remains after the cash distribution.
C is incorrect. The real estate’s basis is limited to the basis that remains after the cash distribution.
D is incorrect. The real estate’s basis is limited to the basis that remains after the cash distribution.
|
