Kathy Is a 25% Partner in the KDP Partnership and Receives

question 37

Multiple Choice

Kathy is a 25% partner in the KDP Partnership and receives $120,000 cash in complete liquidation of her partnership interest.Kathy's outside basis immediately before the distribution is $160,000.KDP currently has a §754 election in effect and has no hot assets or liabilities.Which of the following statements is true?

• A) KDP will step up the basis of its assets by $40,000 and Kathy will recognize a $40,000 loss on the distribution.
• B) KDP will step up the basis of its assets by $40,000 and Kathy will recognize a $40,000 gain on the distribution.
• C) KDP will step down the basis of its assets by $40,000 and Kathy will recognize a $40,000 loss on the distribution.
• D) KDP will step down the basis of its assets by $40,000 and Kathy will recognize a $40,000 gain on the distribution.

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