The SSC Partnership balance sheet includes the following assets on December 31 of the current 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 ordinary income must Susan recognize from the sale?
$$\begin{array} { | l | r | r | }
\hline & \text { Basis } & \text { FMN } \
\hline \text { Cash } & \$ 180,000 & \$ 180,000 \
\hline \text { Accounts receivable } & - 0 - & 60,000 \
\hline \text { Land } & 90,000 & 120,000 \
\hline \text { Total } & \$ 270,000 & \$ 360,000 \
\hline
\end{array}$$

Question

The SSC Partnership balance sheet includes the following assets on December 31 of the current 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 ordinary income must Susan recognize from the sale?
$$\begin{array} { | l | r | r | } 
\hline & \text { Basis } & \text { FMN } \
\hline \text { Cash } & \$ 180,000 & \$ 180,000 \
\hline \text { Accounts receivable } & - 0 - & 60,000 \
\hline \text { Land } & 90,000 & 120,000 \
\hline \text { Total } & \$ 270,000 & \$ 360,000 \
\hline
\end{array}$$

Quizplus · Accepted Answer

Susan's basis in her partnership interest is $90,000. She sells her interest for $120,000, resulting in a capital gain of $30,000 ($120,000 - $90,000). However, she must also recognize ordinary income equal to any depreciation recapture. Since we are not provided with any information regarding the partnership's assets or Sarah's share of depreciation, we can assume that the entire $30,000 gain would be subject to ordinary income tax rates. Therefore, Susan must recognize $20,000 of ordinary income and $10,000 of capital gain. The correct answer is D.

The SSC Partnership Balance Sheet Includes the Following Assets on December