Esther and Elizabeth are equal partners in the EE Partnership. The partners formed the partnership seven years ago by contributing cash. Prior to any distributions, the partners each have a $40,800 basis in their partnership interests including their share of partnership liabilities. On December 31, EE partnership repays $66,000 of debt. What is the amount and character of Esther's recognized gain or loss

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Business

Elyse

1 April, 08:17

Esther and Elizabeth are equal partners in the EE Partnership. The partners formed the partnership seven years ago by contributing cash. Prior to any distributions, the partners each have a $40,800 basis in their partnership interests including their share of partnership liabilities. On December 31, EE partnership repays $66,000 of debt. What is the amount and character of Esther's recognized gain or loss

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Dean Bender · Answer 1

Answer: Esther does not recognize any gain or loss on the distribution and her remaining basis in EE is $15,000

Explanation:

Base on the scenario been described in the question, repayment of liabilities is treated as a cash distribution. Esther's share of the debt reduction is Since this amount is lower than her outside basis ($40,000) she does not recognize a gain or loss. reduces her outside basis by the $25,000, which leaves her $15,000 of outside basis in EE afterthe debt repayment.