Jared owns a 40% interest in the capital and profits of the JAJ Partnership.Immediately before he receives a proportionate nonliquidating distribution from JAJ, the basis of his partnership interest is $60,000.The distribution consists of $40,000 in cash and land with a fair market value of $25,000.JAJ's adjusted basis in the land immediately before the distribution is $30,000.As a result of the distribution, Jared recognizes no gain or loss and his basis in the land is $20,000.

Question

Quizplus · Accepted Answer

Since the distribution is proportionate, Jared's basis in the partnership does not change. The total value of the distribution is $65,000 ($40,000 + $25,000), which is less than his basis in the partnership interest ($60,000). Therefore, he recognizes no gain or loss. His basis in the land is $20,000, which is the fair market value of the land minus JAJ's adjusted basis in the land ($25,000 - $30,000 = -$5,000, but his basis cannot be negative, so it is $20,000).

Jared Owns a 40% Interest in the Capital and Profits