Choice "A" is correct. In a liquidating distribution, the $100,000 cash is applied first to the $180,000 partnership basis, reducing it to $80,000. Even though the partnership's basis in the real estate is only $70,000, Vance's basis in the real estate will be his partnership basis ($80,000) since this is the last asset distributed and it is a liquidating distribution (i.e., Vance's partnership basis must be reduced to zero). Neither Vance nor the partnership recognizes any gain or loss from the distribution.Choice "d" is incorrect. The real estate's fair market value is not used.
Choice "b" is incorrect. $83,000 is the average of the $70,000 basis and the $96,000 fair market value. The average of the two amounts is not used.
Choice "c" is incorrect. Even though the partnership's basis in the real estate is $70,000, Vance's basis in the real estate will be stepped up to $80,000, Vance's remaining basis in the partnership. Because this is a liquidating distribution, Vance's basis in the partnership must be reduced to zero.