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: 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:  What is the amount and character of Shauna's gain or loss on the sale?

Quizplus · Accepted Answer

Shauna's total gain from the sale of ½ of her interest is $15,000 (amount realized of $60,000 cash plus $30,000 debt relief minus her outside basis of $75,000). SH has hot assets (inventory) and the portion Shauna sells is $30,000 ($120,000 appreciation times 25%). This represents the ordinary income from the sale. The difference between the total gain and the ordinary income is a $15,000 capital loss.

Shauna Is a 50% Partner in the SH Partnership