Mario is a 40% partner in the MPC Partnership. On January 1, MPC distributes $32,000 cash and land with a $32,000 fair value (inside basis $16,000). MPC has no liabilities at the date of the distribution. Mario's basis in MPC is $40,000. What is the amount and character of Mario's gain or loss from the liquidating distribution? A) $0 B) $8,000 capital gain C) $24,000 ordinary income D) $24,000 capital gain
Question
Mario is a 40% partner in the MPC Partnership. On January 1, MPC distributes 32,000 fair value (inside basis 40,000. What is the amount and character of Mario's gain or loss from the liquidating distribution? A) 8,000 capital gain C) 24,000 capital gain
Solution
To determine the amount and character of Mario's gain or loss from the liquidating distribution, we need to follow these steps:
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Calculate the total distribution received by Mario:
- Cash: $32,000
- Land (fair value): $32,000
- Total distribution: 32,000 (land) = $64,000
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Determine Mario's basis in the partnership:
- Mario's basis in MPC: $40,000
-
Compare the total distribution to Mario's basis:
- Total distribution: $64,000
- Mario's basis: $40,000
-
Calculate the gain or loss:
- Gain = Total distribution - Mario's basis
- Gain = 40,000 = $24,000
-
Determine the character of the gain:
- In a liquidating distribution, any gain recognized is generally a capital gain unless it is attributable to unrealized receivables or inventory items, which would be ordinary income. In this case, there is no mention of unrealized receivables or inventory items, so the gain is a capital gain.
Therefore, the amount and character of Mario's gain from the liquidating distribution is:
D) $24,000 capital gain
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