If partner|ship debt is reduced and a partner is deemed to receive a cash distribution, what impact does the deemed distribution have on the partner if it is in excess of her tax basis?

A. The partner will treat the distribution in excess of her basis as ordinary income

B. The partner will treat the distribution in excess of her basis as capital gain

C. The partner will not ever be taxed on the distribution in excess of her basis

D. The partner will not be taxed on the distribution in excess of her basis until she sells her partnership interest

Question

Business

Mayra Gilmore

15 April, 17:42

If partner|ship debt is reduced and a partner is deemed to receive a cash distribution, what impact does the deemed distribution have on the partner if it is in excess of her tax basis?

A. The partner will treat the distribution in excess of her basis as ordinary income

B. The partner will treat the distribution in excess of her basis as capital gain

C. The partner will not ever be taxed on the distribution in excess of her basis

D. The partner will not be taxed on the distribution in excess of her basis until she sells her partnership interest

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Answers (1)

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Doogie · Answer 1

B. The partner will treat the distribution in excess of her basis as capital gain

Explanation:

Since the partner have cash that is in excess of tax basis, capital gain is then recognized for excess distribution.