Question

Jane contributed property with a basis of $40,000 and a value of $50,000 to the JO Partnership in exchange for a 20 percent interest in partnership capital and profits. During the first year of partnership operations, JO had net taxable income of $30,000 and tax-exempt interest income of $10,000. The partnership distributed $10,000 cash to Jane. On January 1 of year 2, Jane sells her partnership interest for $49,000. What is Jane's gain or loss on the sale?
a. $9,000 loss.
b. $9,000 gain.
c. $0.
d. $11,000 loss
e. $11,000 gain.

Answer 1

Answer:

E) $11,000 gain.

Explanation:

Jane's capital in the partnership = $40,000 (land exchanged for stock) + $8,000 (Jane's share of the partnership's profits)  - $10,000 (distribution received by Jane) = $38,000

Jane sold her stake at the partnership at $49,000, so her gain = selling price - capital = $49,000 - $38,000 = $11,000