Mark, Pete and Mickey are equal partners in the 2MP Partnership, a general partn
ID: 2577004 • Letter: M
Question
Mark, Pete and Mickey are equal partners in the 2MP Partnership, a general partnership. On January 1, 2016, Mark’s adjusted basis in his partnership interest was $15,000, Pete’s adjusted basis in his partnership interest was $10,000, and Mickey’s adjusted basis in his partnership interest was $20,000. The partnership had taxable income of $30,000 in 2014 which was allocated equally among the partners. On December 31, 2016, the partnership made a non-liquidating distribution of $25,000 cash to Pete. How much income or gain did Pete recognize as a result of the distribution?
a. 0
b. $5,000
c. $15,000
d. $25,000
Explanation / Answer
Income or gain did Pete recognize as a result of the distribution:
Non liquidating distribution of cash to pete = $25,000
less: Partnership Interest of pete =($10,000)
less: Taxable inome of partnership
distributed equally ($30,000/3) = ($10,000)
The gain pete recognizes as a result of distribution = $5,000
hence the option is B ie.,$5,000