Michelle pays $120,000 cash for Brittany's one-third interest in the Westlake Partnership. Just prior to the sale,

Question:

Michelle pays $120,000 cash for Brittany's one-third interest in the Westlake Partnership. Just prior to the sale, Brittany's basis in Westlake is $96,000. Westlake reports the following balance sheet:

Assets: ___________Tax Basis ______FMV

Cash.......................$ 96,000......$ 96,000

Land........................192,000......264,000

Totals....................$ 288,000.....$ 360,000

Liabilities and capital:

Capital- Amy...........96,000

- Brittany.......96,000

- Ben............96,000

Totals...........................$ 288,000

a. What is the amount and character of Brittany's recognized gain or loss on the sale?

b. What is Michelle's basis in her partnership interest? What is Michelle's inside basis?

c. If Westlake were to sell the land for $264,000 shortly after the sale of Brittany's partnership interest, how much gain or loss would the partnership recognize?

d. How much gain or loss would Michelle recognize?

e. Suppose Westlake has a §754 election in place. What is Michelle's special basis adjustment? How much gain or loss would Michelle recognize on a subsequent sale of the land in this situation?

Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...