Capital loss on series of liquidating distributions


19-Apr-2020 14:15

Instead, the gain of ,000 is preserved by giving A a basis in the property of ,000.

Now, if A sells the property for its FMV of ,000, A will recognize the ,000 of gain that the partnership did not recognize.

If S would recognize a ,000 loss on a liquidation of the partnership that follows the distribution to R, then R should be required to recognize ,000, rather than ,000, of gain on a subsequent sale of property 1, so that the total gain recognized by both parties equals the appreciation inside the partnership of ,000. When the pre-distribution bases of the distributed properties (other than money) exceed the partner’s remaining outside basis after reduction for money received, the bases of the properties must be reduced, and this reduction must be allocated among the distributed properties. The total basis of the distributed properties is 0 ( ), A’s remaining outside basis after reduction for money received is 0 (0-).

If the distribution does not include any inventory items or unrealized receivables (“hot assets”), the basis reduction is first allocated among all of the distributed properties to the extent of their unrealized depreciation. A receives a current distribution of in cash as well as properties X and Y which are not hot assets. Thus,  A must take a basis in the properties is 0, and so A is required to reduce the basis of X and Y from 0 to 0.  The first of the basis reduction is allocated to  X to the extent of its unrealized depreciation of ( - ). The remaining of basis reduction is allocated each to X and Y because they have the same remaining basis of .

capital loss on series of liquidating distributions-84

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capital loss on series of liquidating distributions-80

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Remember, the partnership had one asset, property 1, with appreciation of ,000.

The partnership then takes ,000 of the ,000 of cash and purchases property 1.