The SSC Partnership balance sheet includes the following assets on December 31 of the curr3e3n) t year: Susan, a 1/3 partner, has an adjusted basis of $90,000 for her partnership interest. If Susan sells her entire partnership interest to Emma for $120,000 cash, how much capital gain and ordinaryincome must Susan recognize from the sale?

Question

The SSC Partnership balance sheet includes the following assets on December 31 of the curr3e3n) t year:  Susan, a 1/3 partner, has an adjusted basis of $90,000 for her partnership interest. If Susan sells her entire partnership interest to Emma for $120,000 cash, how much capital gain and ordinaryincome must Susan recognize from the sale?

Quizplus · Accepted Answer

Susan's share of the partnership's assets is calculated as $1,200,000 x 1/3 = $400,000. Since her adjusted basis in the partnership is $90,000, her capital gain on the sale is $120,000 - $90,000 = $30,000. However, since the land has appreciated in value and is considered a Section 1231 asset, Susan must also recognize $20,000 of ordinary income ($400,000 x 1/3 x 1/2). Therefore, Susan must recognize a $10,000 capital gain ($30,000 - $20,000) and $20,000 of ordinary income.

The SSC Partnership Balance Sheet Includes the Following Assets on December