Question

At the end of last year, Cynthia, a 20 percent partner in the five-person CYG partnership, has an outside basis of $24,500, including her $10,000 share of CYG debt. On January 1 of the current year, Cynthia sells her partnership interest to Roger for a cash payment of $17,500 and the assumption of her share of CYG's debt. CYG has no hot assets. What is the amount and character of Cynthia's recognized gain or loss on the sale

Answer 1

Answer and Explanation:

The computation of amount and character of Cynthia's recognized gain or loss on the sale is shown below:-

Cynthia's income will be the difference between the $27,500 realized sum and her $24,500 outside the base for an $3,000 income. The income is capital because CYG does not have any hot assets.

Working note:-

Realized amount = Cash + Debt relief

= $17,500 + $10,000

= $27,500