Last year, Cara contributed investment land with an FMV of $24,000 and basis of $18,000 to the CDE Partnership. CDE made no distributions during last year, and Cara's basis in her partnership interest on December 31 of last year was $28,000. On January 1 of this year, the partnership distributed cash of $30,000 to Cara and distributed the land contributed by Cara to another partner, David. On the
distribution date, the land had a $27,000 FMV. Assume the CDE Partnership reported no profit or loss this year. How much gain (if any) must Cara recognize as a result of the distributions? What is her basis in the partnership after the distributions?
What will be an ideal response?
Cara must recognize a $6,000 capital gain ($24,000 FMV at contribution - $18,000 basis at contribution) on the distribution of the land to David. The gain recognized increases Cara's basis in her partnership interest.
Cara's predistribution basis $28,000
Plus: precontribution gain recognized 6,000
$34,000
Minus: cash distribution ( 30,000)
Cara's basis after distribution $ 4,000
No income is recognized as a result of the cash distribution.
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