Jamahl has a 65% interest in a partnership.Jamahl sells land to the JK partnership for $70,000.Prior to the sale,the land had a FMV of $70,000 and an adjusted basis of $90,000 to Jamahl.Two years later,the partnership sells the land for $123,000.Due to the sale,the partnership will recognize
A)a gain of $13,000.
B)a loss of $53,000.
C)a gain of $33,000.
D)a loss of $20,000.

Question

Quizplus · Accepted Answer

Jamahl's 65% interest in the partnership means he owns 65% of the land sold to the partnership. Therefore, he sells 65% of the land to the partnership for $70,000.

The FMV of the land was also $70,000 at the time of the sale, so there was no gain or loss recognized by the partnership at the time of the sale.

However, since the adjusted basis of the land to Jamahl was $90,000, he incurred a loss of $20,000 on the sale. Jamahl can use this loss to offset any capital gains he may have.

Two years later, the partnership sells the land for $123,000, resulting in a gain of $53,000 ($123,000 - $70,000 - $0).

Since Jamahl owns a 65% interest in the partnership, he will recognize a gain of $34,450 ($53,000 x 0.65). Therefore, the answer is C) a gain of $33,000.

Jamahl Has a 65% Interest in a Partnership