Problem 11-33 (LO. 3, 13)

Michelle has a basis in her partnership interest of $85,000. In a proportionate liquidating distribution of the partnership, Michelle receives $5,000 cash and a car (a 1231 asset to the partnership) having a basis of $20,000 to the partnership and a fair market value of $30,000. Disregard any potential depreciation recapture on the car.

a. How much gain or loss, if any, may Michelle recognize on the distribution? Michelle recognizes a gain of $

b. What basis will Michelle take in the car?

c. Suppose Michelle's 18-year-old son uses the car for his personal use for one year before Michelle sells it for $28,000.

• (1) Does Michelle recognize any gain or loss? If so how much?