Matt receives a proportionate nonliquidating distribution.At the beginning of the partnership year, the basis of his partnership interest is $60,000.During the year, he received a cash distribution of $25,000 and a property distribution (basis of $20,000, fair market value of $12,000).In addition, Matt's share of partnership liabilities was reduced by $20,000 during the year.How much gain or loss does Matt recognize; what is his basis in the property he received; and what is his remaining basis in the partnership interest?
A)$3,000 loss; $12,000 basis in property; $0 remaining basis.
B)$0 gain or loss; $15,000 basis in property; $0 remaining basis.
C)$0 gain or loss; $20,000 basis in property; $15,000 remaining basis.
D)$0 gain or loss; $12,000 basis in property; $23,000 remaining basis.
E)$5,000 gain; $20,000 basis in property; $0 remaining basis.

Question

Quizplus · Accepted Answer

Matt received a proportionate nonliquidating distribution, meaning that his basis is reduced by the amount of the distribution received. 
Initial basis = $60,000 
Cash distribution = $25,000, basis reduced to $35,000 ($60,000 - $25,000) 
Property distribution (basis) = $20,000, basis reduced to $15,000 ($35,000 - $20,000) 
Matt's share of partnership liabilities was reduced by $20,000, increasing his basis to $35,000 ($15,000 + $20,000) 
Since the fair market value of the property is less than its basis, Matt will not recognize any gain or loss on the distribution. 
Therefore, Matt has $15,000 basis in the property received and $0 remaining basis in the partnership interest.

Matt Receives a Proportionate Nonliquidating Distribution