Desi's adjusted basis of her partnership interest was $40,000 immediately before she received a distribution in full liquidation of her Makris partnership interest. (The partnership had no hot assets and also liquidated.) The distribution consisted of $25,000 in cash and land with a fair market value of $30,000. Makris's basis in the land was $10,000 immediately prior to the distribution. During the year, Desi sold the land for $50,000. How will Desi report the liquidating distribution and the sale on her income tax return

The multiple choices are:

a. No gain or loss $35,000 capital gain

b. No gain or loss $22,000 capital gain

c.$15,000 gain $20,000 capital gain

d.$25,000 gain $10,000 capital gain

The correct option is C,$15,000 gain $20,000 capital gain

Explanation:

The liquidating distribution has basis of $40,000 prior to liquidation and Desi received $25,000 in cash and a land with market value of $30,000, invariably the assets distributed to Desi are worth $55,000 ($25,000+$30,000).

As a result, Desi immediately had a gain which is the difference between the basis in the partnership and the worth of distributed asset, which is $15,000 ($55,000-$40,000)

In addition, by selling a land whose worth was $30,000 for $50,000, Desi recorded a capital gain on the disposal of $20,000 ($50,000-$30,000).

The correct option is C.