A, B, C, and D are equal partners in the ABCD partnership. The partnerships current balance sheets
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A, B, C, and D are equal partners in the ABCD partnership. The partnership’s current balance sheets are as follows.
Partner A agrees to sell her interest in the partnership to new partner E for $2,500 in cash, plus assumption of her $4,500 share of partnership debt. A’s tax basis in her partnership interest is$5,500 ($1,000 tax capital account plus $4,500 share of partnership debt). The selling price of her interest is $7,000 ($2,500 cash plus $4,500 debt relief). Thus, she has a $1,500 gain on the sale.
Required
Calculate A’s ordinary income and capital gain income on the sale of her partnership interest.
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