Question

Fatima pays $203,000 cash for brittany's one-third interest in the westlake partnership. just prior to the sale, brittany's basis in westlake is $98,800. westlake reports the following balance sheet:

Assets: Tax Basis FMV
Cash $ 96,000 $ 96,000
Land 192,000 264,000
Totals $ 288,000 $ 360,000
Liabilities and capital:
Capital – Amy 96,000
– Brittany 96,000
– Ben 96,000
Totals $ 288,000
What is the amount and character of Brittany’s recognized gain or loss on the sale?

Answer 1

Brittany's recognized gain on the sale of her one-third interest in the Westlake partnership is $104,200. The character of the gain depends on the nature of her partnership interest.

Step-by-step explanation:

Brittany's recognized gain on the sale can be calculated by subtracting her basis in Westlake ($98,800) from the amount she received from the cash sale ($203,000).

Gain = Amount received - Basis = $203,000 - $98,800 = $104,200

The character of the recognized gain will depend on the nature of the partnership interest. If Brittany's interest was a capital asset, then the recognized gain would be a capital gain. If it was an ordinary income asset, then the gain would be treated as ordinary income.

When Fatima pays $203,000 in cash for Brittany’s one-third interest in the Westlake Partnership, we have to calculate the recognized gain or loss for Brittany. Brittany's basis in the Westlake Partnership prior to the sale is $98,800. The amount realized from the sale is $203,000. The recognized gain would be the amount realized minus the basis, which is $203,000 - $98,800 = $104,200. This is a capital transaction because it involves the sale of a partnership interest, and therefore, Brittany would recognize a capital gain of $104,200.