Question

Pamela, a 1/3 partner, has an adjusted basis of $100,000 for her partnership interest. If Pamela sells her entire partnership interest to Emma for $135,000 cash, how much capital gain and ordinary income must Pamela recognize from the sale

Answer 1

Answer: Capital gain = $10,000 ; Ordinary income = $25,000

Explanation:

Here is the complete question:

The PLM Partnership balance sheet includes the following assets on December 31 of the current year:

Basis FMV

Cash $230,000 $230,000

Accounts receivable 0 75000

Land 70,000 100,000

Total $300,000 $405,000

Pamela, a 1/3 partner, has an adjusted basis of $100,000 for her partnership interest. If Pamela sells her entire partnership interest to Emma for $135,000 cash, how much capital gain and ordinary income must Pamela recognize from the sale?

The following can be calculated based on the question above:

Pamela's share of the unrealized receivables will be the ordinary income which will be the unrealized receivables of $75000 which is then multiplied by 1/3 which is the interest. This will be:

Ordinary income = 1/3 × $75,00

= $25,000

The capital gain will be the difference that occurs between total gain and ordinary income.

Total gain difference

= $135,000 - $100,000

= $35,000

Ordinary Income = $25,000

Capital gain = $35,000 - $25,000

= $10,000