Shauna is a 50% partner in the SH Partnership.Shauna sells one-half of her interest to Kara for $60,000 cash.Just before the sale,Shauna's basis in her entire partnership interest is $150,000 including her $60,000 share of the partnership liabilities.SH's assets on the sale date are as follows:
$\begin{array} { l r r r }
& \text { Basis } & \text { FMV } \
\text { Cash } & \$ 80,000 & \$ 80,000 \
\text { Irventory } & 60,000 & 180,000 \
\text { Lard held For irvestrnent }& \underline {160,000 }& \underline {100,000} \
\text { Total } & \underline {\$ 300,000} & \underline {\$ 300,000}
\end{array}$ What is the amount and character of Shauna's gain or loss on the sale?

Question

Shauna is a 50% partner in the SH Partnership.Shauna sells one-half of her interest to Kara for $60,000 cash.Just before the sale,Shauna's basis in her entire partnership interest is $150,000 including her $60,000 share of the partnership liabilities.SH's assets on the sale date are as follows:  
$\begin{array} { l r r r } 
& \text { Basis } & \text { FMV } \
\text { Cash } & \$ 80,000 & \$ 80,000 \
 \text { Irventory } & 60,000 & 180,000 \
 \text { Lard held For irvestrnent }& \underline {160,000 }& \underline {100,000} \
\text { Total } & \underline {\$ 300,000} & \underline {\$ 300,000}
\end{array}$ What is the amount and character of Shauna's gain or loss on the sale?

Quizplus · Accepted Answer

First, we need to determine the amount of Shauna's basis in the portion of her partnership interest that she sold to Kara. Since she sold half of her interest, her basis in the portion sold is half of her original basis, or $75,000 ($150,000/2).

Next, we need to determine the amount realized by Shauna on the sale. She received $60,000 in cash from Kara.

The gain or loss on the sale is the difference between the amount realized and the adjusted basis. The adjusted basis is the basis in the portion sold ($75,000) plus Shauna's remaining basis in her partnership interest ($75,000), or $150,000.

Amount realized: $60,000
Adjusted basis: $150,000

Gain or loss: ($90,000)

Since the sale resulted in a loss, we need to determine the character of the loss. The loss is considered an ordinary loss to the extent of Shauna's share of the partnership's liabilities, which is $30,000 ($60,000/2). The remaining $60,000 of the loss is a capital loss.

Therefore, Shauna's gain or loss on the sale is $30,000 of ordinary income and $60,000 of capital loss. Answer choice A is correct.

Shauna Is a 50% Partner in the SH Partnership What Is the Amount and Character of Shauna's Gain or One-Half