Grace, James, Helen, and Charles each own equal interests in GJHC Partnership, a calendar-year-end, cash-method entity. On
Question:
Grace, James, Helen, and Charles each own equal interests in GJHC Partnership, a calendar-year-end, cash-method entity. On January 1 of the current year, James’s basis in his partnership interest is $77,500. For the taxable year, the partnership generates $86,400 of ordinary income and $33,400 of dividend income. For the first five months of the year, GJHC generates $24,250 of ordinary income and no dividend income. On June 1, James sells his partnership interest to Robert for a cash payment of $85,750. The partnership has the following assets and no liabilities at the sale date: (Do not round your intermediate calculations. Round your final calculation to the nearest whole dollar amount. Enter a loss as a negative number.) |
| Tax Basis | FMV | ||||
| Cash | $ | 43,750 | $ | 43,750 | |
| Land held for investment | 97,750 | 118,750 | |||
| Totals | $ | 141,500 | $ | 162,500 | |
| a. | Assuming GJHC’s operating agreement provides that the proration method will be used to allocate income or loss when partners’ interests change during the year, what is James’s basis in his partnership interest on June 1 just prior to the sale? |
| b. | What is the amount and character of James’s recognized gain or loss on the sale? |
| c. | If GJHC uses an interim closing of the books, what is the amount and character of James’s recognized gain or loss on the sale? |
