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

question 56

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

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Definitions:

Percent

A proportion or share in a whole, expressed as a fraction of 100.

Percentage Less

The reduced amount expressed as a fraction of a hundred.

Sales

The exchange of goods or services for money, constituting the primary source of revenue for most businesses.

Percent Change

The percentage difference between two values, indicating the degree of increase or decrease.