Question

Morse is a 50% partner in Ecco Partnership. Morse's tax basis in Ecco on January 2 was $4,000. Ecco did not have unrealized receivables, appreciated inventory, or properties that had been contributed by its partners. On December 31, Ecco made an $11,000 nonliquidating cash distribution to Morse. For the year, Ecco reported $10,000 of ordinary business income. What is the amount of the net capital gain realized by Morse from the cash distribution

Answer 1

Answer:

$2,000

Explanation:

Calculation for the amount of the net capital gain realized by Morse from the cash distribution

First step is to calculate the basis prior to the distribution

Basis prior to the distribution=[$4,000+(50%* $10,000)]

Basis prior to the distribution=$4,000+$5,000

Basis prior to the distribution=$9,000

Now let calculate net capital gain realized by Morse from the cash distribution

Net capital gain realized from cash distribution=($9,000-$11,000)

Net capital gain realized from cash distribution=$2,000

Therefore the amount of the net capital gain realized by Morse from the cash distribution will be $2,000