Mr. and Ms. Smith\'s partnership owns the following assets. Adjusted Basis Fair

Question

Mr. and Ms. Smith's partnership owns the following assets. Adjusted Basis Fair Market Value Accounts receivable $ –0– $ 60,000 Inventory 20,000 30,000 Machinery and equipment* 50,000 90,000 Buildings** 120,000 170,000 Land 80,000 140,000 $270,000 $490,000 * Potential § 1245 recapture of $45,000. ** 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 $500,000. a. $110,000 ordinary income and $120,000 capital gain. b. $230,000 capital gain. c. $115,000 ordinary income and $115,000 capital gain. d. $230,000 ordinary income.

Explanation / Answer

Answer :-

If they sell their partnership intereint for $500,000 ,

Option (a) $ 110,000 ordinary income and 120,000 capital gain.

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