In a proportionate liquidating distribution in which the partnership is liquidated, Bill received cash of $120,000, inventory (basis of $6,000, fair market value of $8,000), and a capital asset (basis and fair market value of $16,000). Immediately before the distribution, Bill's basis in the partnership interest was $90,000
a. How much gain or loss will Bill recognize on the distribution?
b. What is Bill's basis in the inventory and the capital asset?
a. Bill recognizes a capital gain of $30,000 on the liquidation of his partnership interest. This equals the excess of the cash distribution over Bill's basis in his partnership interest before the distribution ($120,000 cash – $90,000 basis).
b. Bill's bases in the inventory and capital asset are both $0 . His basis is reduced to $0 by the cash distribution, so he has no remaining basis to allocate to the other properties.
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