Question

Heather sells land (adjusted basis, $88,400; fair market value, $114,920) to a partnership in which she controls an 80% capital interest. The partnership pays her only $61,880 for the land.

The partnership later sells the land to a third party for $300,520. The partnership has a realized gain of $_________and a recognized gain of $________ on its sale of the land.

Answer 1

Realized gain = $238,640

Recognized gain = $212,120

Step-by-step explanation:

The computation of realized gain and recognized gain is shown below:-

Realized gain = Cash received - Adjusted basis of partnership

= $300,520 - $61,880

= $238,640

So, for computing the realized gain we simply deduct the adjusted basis of partnership from cash received.

Recognized gain = Cash received - Adjusted basis of Heather

= $300,520 - $88,400

= $212,120

and for computing the recognized gain we simply deduct the adjusted basis of Heather from cash received.