In a proportionate liquidating distribution in which the partnership is also liquidated, Ralph received cash of $30,000, accounts receivable (basis of $0, fair market value of $20,000), and land (basis of $1,000, fair market value of $10,000). Immediately before the distribution, Ralph's basis in the partnership interest was $40,000. Ralph realizes and recognizes a loss of $9,000, and his basis is $0 in the accounts receivable and $1,000 in the land.

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Ralph's realized loss is calculated as the excess of his adjusted basis ($40,000) over the sum of the cash received ($30,000) and the fair market value of the property received ($20,000 + $10,000 = $30,000). This results in a realized loss of $10,000, which is greater than the recognized loss of $9,000 due to the basis limitations on property received in a liquidating distribution. Therefore, Ralph's basis in the accounts receivable is $0 (limited to fair market value) and his basis in the land is $1,000 (limited to adjusted basis).

In a Proportionate Liquidating Distribution in Which the Partnership Is