Barry owns a 50 percent interest in B&B Interests, a partnership. His brother, Benny, owns a 35 percent interest in that same partnership, and the remaining 15 percent is owned by an unrelated individual. During 2014, Barry sells a rental property with a basis of $60,000 to B&B Interests for $100,000. The partnership intends to hold the rental as inventory for resale. What is the amount and nature of Barry's gain or loss on this transaction?

Question

Quizplus · Accepted Answer

Since Barry sold the rental property to the partnership of which he is a partner, the transaction is considered as a related-party transaction. Therefore, the transaction will be treated as a sale to a controlled entity, and the gain or loss recognized will be treated as ordinary income or loss, not as a capital gain or loss. Barry's basis in the rental property was $60,000, and the sale price to the partnership was $100,000, resulting in a gain of $40,000, which will be treated as ordinary income.

Barry Owns a 50 Percent Interest in B&B Interests, a Partnership