Cash Distribution in Partial Liquidation of Partners to

Cash distribution in partial liquidation of partners

This preview shows page 17 - 19 out of 27 pages.

Cash Distribution in Partial Liquidation of Partner's Interest—Consequences to Recipient Partner 33. a. None. b. $5,000 ($30,000 pre-distribution tax basis in partnership interest less $25,000 cash distribution received). c. The distribution will reduce her economic interest in the partnership from 33% to 20%. To illustrate, Susan owned $2 of every $6 in partnership assets prior to the distribution (one-third). The distribution reduces her interest in the partnership, but it also reduces the partnership's remaining assets. Thus, her economic interest (i.e., percentage interest) in the partnership will not be reduced by half (because both the numerator and the denominator are changing). In this case, presumably, she received $1 of every $6 of partnership assets in the distribution. Thus, following the distribution, she should own $1 of every $5 in remaining partnership assets, leaving her with a 20% interest in the partnership. Excess Cash Distribution in Partial Liquidation of Partner's Interest—Consequences to Recipient Partner 34. a. $15,000—even though the distribution redeems half his interest in the partnership, it is applied against his aggregate basis in his partnership interest. Accordingly, he recognizes gain in an amount equal to the excess of the cash distribution over his basis in the entire partnership interest. b. Zero. ‘‘Excess'' Property Cash Distribution in Partial Liquidation of Partner's Interest—Consequences to Recipient Partner 35. a. No. b. Ordinarily, he would take a carryover basis of $48,000 in the property received in the distribution. However, his tax basis in the property received will be limited to his tax basis in the partnership interest just prior to receipt of the distribution. Thus, in this case, he will take a tax basis in the distributed property equal to $40,000. c. Zero. Current Property Distribution—Consequences to Recipient Partner 36. a. None. b. She will take a carryover basis of $22,000 in the property received. c. She would still recognize no gain, but her tax basis in the property would now be limited to her $25,000 pre-distribution basis in her partnership interest. Current Distribution of Multiple Properties—Consequences to Recipient Partner 37. a. No. b. His basis in the two properties will be limited to his $30,000 pre-distribution tax basis in the partnership interest. Because the aggregate tax basis of the two properties in the partnership's hands was $40,000 ($28,000 basis in Property 1 plus $12,000 basis in Property 2), this will require a step-down in basis of $10,000. Neither property has depreciated in value, so the step-down will be allocated by reference to the two properties' basis in the partnership's hands. Property 1 will be allocated 28/40ths of the reduction, or $7,000 and Property 2 will be allocated 12/40ths of the © 2007 CCH. All Rights Reserved. Chapter 20
Image of page 17
380 CCH Federal Taxation—Comprehensive Topics reduction or $3,000. Thus, Rick's tax basis in Property 1 will be $21,000, and his tax basis in Property 2 will be $9,000.
Image of page 18
Image of page 19

You've reached the end of your free preview.

Want to read all 27 pages?

  • Summer '09
  • JulieKim
  • partner, Retiring Partners

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture