When Rachel's basis in her interest in the RST Partnership is $40,000, she receives a current distribution of office equipment. The equipment has an FMV of $60,000 and a basis of $50,000. Rachel will not use the office equipment in a business activity. What tax issues should Rachel consider with respect to the distribution?
What will be an ideal response?
• Does Rachel recognize a gain or loss on the current distribution?
• What is Rachel's basis in the office equipment?
• When does Rachel's holding period begin for the property?
• Does any depreciation recapture carry over to Rachel from the partnership?
• What is Rachel's basis in her partnership interest following the distribution?
Rachel recognizes no gain or loss on the distribution. Her basis for the equipment would be a carryover basis from the partnership ($50,000) if that were possible, but it is limited to her basis in her partnership interest prior to the distribution ($40,000). Rachel's holding period for the office equipment includes the holding period the partnership had for the property. Her basis in the partnership interest is zero following the distribution.
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