Question

Jackson is a 30 percent partner in the JJM Partnership when he sells his entire interest to Rhonda for $112,000 cash. At the time of the sale, Jackson's basis in JJM is $64,000. JJM does not have any debt or hot assets. What is Jackson's gain or loss on the sale of his interest?
A. $48,000 ordinary income.B. $24,000 capital gain and $24,000 ordinary income.C. $48,000 capital gain.D. Gain or loss cannot be determined.

Answer 1

Answer: C. $48,000 capital gain

Explanation:

To calculate the Gain or loss on the sale of Jackson's interest we will subtract his adjusted basis from the sale of his entire interest in the following manner,

Gain(loss) on sale of interest = Amount realised - Adjusted basis in partnership

= 112,000 - 64,000

= 48,000

$48,000 will be his Gain on the sale of his interest. It will also be considered CAPITAL as he does not have Hot assets like inventory just equity.