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.
 

Assets Cash Accounts receivable Inventory Stock held as an investment Land held as an investment Liabilities and Capital Recourse liabilities Capital A Capital B Capital C Capital D Book Value 2,000 0 2,000 16,000 2,000 22,000 18,000 1,000 1,000 1,000 1,000 22,000 FMV 2,000 2,500 2,500 16,000 5,000 28,000 18,000 2,500 2,500 2,500 2,500 28,000