C is corrent. In a liquidating distribution, a partner’s basis for a partnership interest is first reduced by the amount of cash received and by the partnership’s basis for any unrealized receivables and inventory received. Any remaining basis is then allocated to other property received. Here, King’s partnership basis of $24,000 is first reduced by the $4,000 cash to $20,000. This $20,000 becomes the basis of the distributed realty. Note that even though the FMV of the realty is $40,000, King recognizes no gain, since gain is recognized on a distribution only if the cash received exceeds the basis of the partnership interest.
A is incorrect. The land must absorb his remaining partnership basis.
A is incorrect. The land must absorb his remaining partnership basis.
D is incorrect. The land must absorb his remaining partnership basis.
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