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 the current year, 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

Barry's sale of the rental property to the partnership is not a transaction between unrelated parties. Since he owns a 50 percent interest in the partnership, the transaction is treated as a transaction between related parties. Therefore, the sale is not eligible for capital gain treatment, and the entire $40,000 gain on the sale is treated as ordinary income.

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