Nick sells his 25% interest in the LMNO Partnership to new partner Katrina for $57,500.The partnership's assets consist of cash ($100,000), land (basis of $90,000, fair market value of $70,000), and inventory (basis of $40,000, fair market value of $60,000).Nick's basis in his partnership interest was $57,500.On the sale, Nick will recognize ordinary income of $5,000 and a capital loss of $5,000.

Question

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Nick's basis in his partnership interest was $57,500. He sold his interest for $57,500, so he will not recognize any gain or loss on the sale. However, the partnership's assets have a fair market value of $230,000, and Nick's 25% interest in the partnership is worth $57,500. Therefore, Nick will recognize a capital loss of $5,000 on the sale.

Nick Sells His 25% Interest in the LMNO Partnership to New