McGraw-Hill's Taxation of Individuals and Business Entities 3rd Edition by Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver

Exercise 6

AJ is a 30% partner in the Trane partnership, a calendar year end entity.On January 1, AJ has an outside basis in his interest in Trane of $73,000, which includes his share of the $50,000 of partnership liabilities.Trane generates $42,000 of income during the year and does not make any changes to its liabilities.On December 31, Trane makes a proportionate distribution of the following assets to AJ to terminate his partnership interest:
?? Basis ? FMV
?Inventory?$ 55,000?$ 65,000
?Land? 30,000 ? 25,000
? Totals? $ 85,000 ? $90,000
?
a.What are the tax consequences (gain or loss, basis adjustments) of the distribution to Trane?
b.What is the amount and character of any recognized gain or loss to AJ?
?c.What is AJ's basis in the distributed assets?
d.If AJ sells the inventory four years after the distribution for $70,000, what is the amount and character of his recognized gain or loss?