Question

Samantha, a one-third partner, has an adjusted basis of $90,000 for her partnership interest. If Samantha sells her entire partnership interest to Emma for $100,000 cash, what is the amount and character of Samantha's gain or loss from the sale?

a. $10,000 capital gain.
b. $10,000 ordinary income.
c. $20,000 ordinary income; $10,000 capital gain.
d. $10,000 capital loss; $20,000 ordinary income.

Answer 1

$10,000 capital gain.

Step-by-step explanation:

Given that:

• Adjusted basis of $90,000
• Sell her interest for $100,000

So the difference between her basis and sales interest is:

$100,000 - $90,000

= $10,000

She will have a gain on sales of her interest because she receives the only cash for the sales and the amount is greater than her basis in her partnership. Therefore, the gain will be seen as capital

Answer 2

Correct option is D.

$10,000 capital loss; $20,000 ordinary income.

Step-by-step explanation:

Samantha's share of unrealized receivables is $20,000 ($60,000 unrealized receivables × 1/3 interest). Susan will recognize $20,000 of ordinary income and a $10,000 capital gain determined as the difference between the total gain of $30,000 and the ordinary income of $20,000.