Barry owns a 50 percent interest in B&B Interests,a partnership.His brother,Benny,owns a 35 percent interest in that same partnership,and the remaining 15 percent is owned by an unrelated individual.During 2013,Barry sells a rental property with a basis of $60,000 to B&B Interests for $100,000.The partnership intends to hold the rental as inventory for resale.What is the amount and nature of Barry's gain or loss on this transaction?

Question

Quizplus · Accepted Answer

Since the property is being sold to the partnership with the intention of being held as inventory for resale, it is considered a sale to a related party and is treated as a sale to a third party. Therefore, Barry will recognize a $40,000 long-term capital gain on the sale ($100,000 selling price - $60,000 basis = $40,000 gain). However, this gain is considered ordinary income because the property was held for use in a trade or business.

Barry Owns a 50 Percent Interest in B&B Interests,a Partnership