At the end of last year, Cynthia, a 20% partner in the five-person CYG partnership, has an outside basis of $30,000 including her $15,000 share of CYG debt. On January 1 of the current year, Cynthia sells her partnership interest to Roger for a cash payment of$22,500 and the assumption of her share of CYG's debt. CYG has no hot assets. What is the amount and character of Cynthia's recognized gain or loss on the sale?

Question

Quizplus · Accepted Answer

Cynthia’s outside basis is $30,000, which includes her share of partnership debt of $15,000. Thus, her inside basis in the partnership interest is $15,000 ($30,000 – $15,000). Roger’s assumed share of debt will increase his outside basis in the partnership interest by $15,000. Therefore, the deemed sale price of Cynthia’s partnership interest will be $37,500 ($22,500 cash received + $15,000 share of Cynthia’s debt assumed by Roger).

Cynthia’s recognized gain or loss from the sale of her partnership interest is calculated as follows:

Sale price ($37,500) – Adjusted basis ($15,000) = Recognized gain ($22,500)

Since Cynthia held the partnership interest for more than one year, the recognized gain is a long-term capital gain. Thus, Answer A is the correct answer.

At the End of Last Year, Cynthia, a 20% Partner