Last year,Oscar contributed nondepreciable property with a basis of $40,000 and a fair market value of $50,000 to the Starling Partnership in exchange for a 25% interest in the partnership.In the current year,he receives a nonliquidating distribution from the partnership of other property with a basis to the partnership of $26,000 and a fair market value of $32,000.The basis in his partnership interest at the time of the distribution was $30,000.How much gain or loss does Oscar recognize on the distribution? (Assume no other distributions have been made to Oscar,the property he originally contributed is still owned by the partnership,and this is not a disguised sale transaction.)
A)$0 gain or loss.
B)$2,000 gain.
C)$10,000 gain.
D)$18,000 gain.
E)$4,000 loss.

Question

Quizplus · Accepted Answer

The precontribution gain on the property Oscar originally contributed to the partnership was $10,000.The excess of the fair market value of the property distributed over Oscar's basis in his partnership interest (not the partnership's basis in the asset distributed),was $2,000 ($32,000 - $30,000).The lesser of these two amounts must be recognized by Oscar since the original property was contributed less than seven years prior to the distribution date.

Last Year,Oscar Contributed Nondepreciable Property with a Basis of $40,000