Mr.and Ms.Smith's partnership owns the following assets:
* Potential § 1245 recapture of $30,000.

** Straight-line depreciation was used.
mr.and Ms.Smith each have a basis for their partnership interest of $135,000. Calculate their combined recognized gain or loss and classify it as capital or ordinary if they sell their partnership interests for $470,000.
A)$200,000 ordinary income.
B)$200,000 capital gain.
C)$100,000 ordinary income and $100,000 capital gain.
D)$90,000 ordinary income and $110,000 capital gain.
E)None of the above.

Question

Mr.and Ms.Smith's partnership owns the following assets:
* Potential § 1245 recapture of $30,000.

** Straight-line depreciation was used.
mr.and Ms.Smith each have a basis for their partnership interest of $135,000. Calculate their combined recognized gain or loss and classify it as capital or ordinary if they sell their partnership interests for $470,000.
A)$200,000 ordinary income. 
B)$200,000 capital gain. 
C)$100,000 ordinary income and $100,000 capital gain. 
D)$90,000 ordinary income and $110,000 capital gain. 
E)None of the above.

Quizplus · Accepted Answer

The sale of a partnership interest is treated as the sale of a capital asset under § 741,subject to ordinary income treatment for unrealized receivables and substantially appreciated inventory under § 751.The recognized gain on the unrealized receivables and substantially appreciated inventory is as follows: 11ea7f05_2e9c_23bf_92e1_cd4476b04587_TB4123_00 
* Inventory also includes the unrealized receivables in determining whether the inventory is substantially appreciated.The remaining gain of $100,000 is gain from the sale of a capital asset,which is classified as a capital gain.

Mr.and Ms.Smith's Partnership Owns the Following Assets