Josh Owns a 25% Capital and Profits Interest in the Calendar

question 38

Essay

Josh owns a 25% capital and profits interest in the calendar year GDJ Partnership. His adjusted basis for his partnership interest on October 15 of the current year is $300,000. On that date, the partnership liquidates and makes a proportionate distribution of the following assets to Josh. $\begin{array}{lrr}&\text { Partnership's Basis in Asset} &\text { Asset's Fair Market Value }\\\text { Cash } & \$ 70,000 & \$ 70,000 \\\text { Inventory } & 120,000 & 150,000\end{array}$
a. Calculate Josh's recognized gain or loss on the liquidating distribution, if any, and his basis in the distributed inventory.
How would your answer to
a. change if the partnership also distributed a small parcel of land it
b. had held for investment to Josh? Assume the land has a $5,000 adjusted basis FMV is $8,000)
to the partnership.

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Definitions:

Merchandise Inventories

Goods that a company holds for the purpose of sale in the ordinary course of business, including finished products, work in progress, and raw materials.

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including material and labor expenses.

Monthly Expenses

Recurring costs or outlays that occur every month, such as rent, utilities, payroll, and other operational charges.

Master Budget

A comprehensive financial plan that includes both operational and financial budgets, representing a company’s overall plan of action for a future period.