At the end of last year, Cynthia, a 20percent partner in the five-person CYG partnership, has an outside basis of $27,500, including her $13,000 share of CYG debt. On January 1 of the current year, Cynthia sells her partnership interest to Roger for a cash payment of $20,500 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 recognized gain is calculated by subtracting her outside basis from the amount realized from the sale. The amount realized is the cash received ($20,500) plus the relief of debt ($13,000), totaling $33,500. Her outside basis is $27,500. Therefore, the recognized gain is $33,500 - $27,500 = $6,000. Since there are no hot assets involved, the gain is considered a capital gain.

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