Lars has a basis in his partnership interest in XXL of $100,000.He sells the partnership interest in XXL for $160,000.XXL is a cash-basis partnership which has accounts receivable with a $30,000 fair market value and a zero adjusted basis.Lars's share of these receivables is $10,000.What is the amount and character of the gain that Lars recognizes on the sale of his partnership interest?
A)$50,000 capital gain
B)$60,000 capital gain
C)$10,000 ordinary income and $50,000 capital gain
D)$10,000 ordinary income and $60,000 capital gain

Question

Quizplus · Accepted Answer

Lars has a basis in his partnership interest of $100,000 and sells it for $160,000, resulting in a $60,000 capital gain. However, he also has a share of the partnership's accounts receivable, which have a fair market value of $30,000 but a zero adjusted basis. When he sells his partnership interest, he is required to recognize the gain on the receivables as ordinary income. Lars's share of the receivables is $10,000, so he will recognize $10,000 of ordinary income in addition to the $60,000 capital gain, resulting in a total recognized gain of $70,000, of which $10,000 is ordinary income and $60,000 is capital gain. Therefore, the correct answer is C.

Lars Has a Basis in His Partnership Interest in XXL