On June 30 of the current tax year, Sal sells her 40% interest in the STU Partnership to new partner James for $300,000, including Sal’s share of partnership liabilities. At the beginning of the tax year, Sal’s basis in her partnership interest was $80,000 (excluding her share of partnership debt). The partnership reported income of $240,000 for the year, and Sal’s share of partnership debt was $100,000 at the sale date. (Assume the partnership uses a monthly proration of income.) The partnership’s assets consist of cash ($390,000), land (basis of $180,000, fair market value of $210,000), and unrealized receivables (basis of $0, fair market value of $150,000). What is Sal’s basis at the sale date, and how much gain must Sal recognize?

$180,000 basis, $60,000 ordinary income, $60,000 capital gain.

$128,000 basis, $60,000 ordinary income, $112,000 capital gain.

$228,000 basis, $60,000 ordinary income, $12,000 capital gain.

$180,000 basis, $120,000 capital gain.

$228,000 basis, $12,000 ordinary income, $60,000 capital gain.

Answer rating: 100% (QA)

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