Problem 3: Karen has a basis in her partnership interest of $24,000

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Problem 3: Karen has a basis in her partnership interest of $24,000 when she receives a distribution from the partnership of $12,000 cash, and equipment with a basis of $16,000 ($24,000 FMV).

How much gain or loss must Karen recognize on the distribution?

In a partnership, a gain can only be recognized if cash generated from a distribution if higher than the partner’s basis (Internal Revenue Service, 2019). However, loss cannot be recognized in operating distribution. In this case, Karen will recognize no loss or gain since cash received from distribution partnership is $12,000 more than her basis at $24,000.

What is Karen’s ending partnership basis?

Beginning partnership basis $24,000

Less: Cash distribution (12,000)

Less: Basis in equipment (12,000)

Ending partnership basis 0

Karen’s ending partnership basis is zero.

What is Karen’s basis in the equipment?

Karen’s basis in equipment is $12,000

Problem 3: Karen has a basis in her partnership interest of $24,000