At the end of last year, Cynthia, a 20percent partner in the five-person CYG partnership, has an outside basis of $23,000, including her $8,500 share of CYG debt. On January 1 of the current year, Cynthia sells her partnership interest to Roger for a cash payment of $16,000 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?
A) $7,000 capital loss.
B) $7,000 ordinary loss.
C) $1,500 capital gain.
D) $7,500 ordinary income.

Question

Quizplus · Accepted Answer

Cynthia's amount realized from the sale is the sum of the cash received ($16,000) and the relief of debt ($8,500), totaling $24,500. Her basis in the partnership interest was $23,000. The difference between the amount realized ($24,500) and her basis ($23,000) is a $1,500 gain. Since there are no hot assets involved, the gain is treated as a capital gain.

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