Diana, a partner in the cash basis HDA Partnership, has a one-third interest in

Question

Diana, a partner in the cash basis HDA Partnership, has a one-third interest in partnership profits and losses. The partnership's balance sheet at the end of the current year is as follows: Basis FMV Basis FMV Cash $120,000 $120,000 Hannah, capital $90,000 $250,000 Receivables 0 240,000 Diana, capital 90,000 250,000 Land 150,000 390,000 Alexis, capital 90,000 250,000 Total $270,000 $750,000 Total $270,000 $750,000 Diana sells her interest in the HDA Partnership to Kenneth at the end of the current year for cash of $250,000. a. How muc income must Diana report on her tax return for the current year from the sale? What is its nature? b. If the partnership did make an optional adjustment-to-basis election, what are the type and amount of income that Kenneth must report in the next year when the receivables are collected? c. If the partnership did make an optional adjustment-to-basic election, what are the type and amount of income that Kenneth must report in the next year when the receivables are collected? When the land(which is used in the HDA Partnership business) is sold for $420,000? Assume that no other transactions occurred that year.

Explanation / Answer

ASSETS Basis FMV Cash $120,000 $120,000 Accounts Receivable 0 $240,000 Land $150,000 $390,000 Total $270,000 $750,000 LIABILITIES Capital Hannah $90,000 $250,000 Brittney $90,000 $250,000 Alexis $90,000 $250,000 a Basis in the property is 600000. 1/3 share in the basis of net assets is 200000. Hannah has sold his share for 250000 so gain on the sale of interest is 50000. b In the next year when receivable will be collected Richard will show his income NIL. Because his interset is 1/3 which he has purchased for 250000. Total assets is 750000 so 1/3 is 250000. As per this calculation his income will be NIL. c Here land is sold for 420000. In this allocation Richard income will be not as income but as a capital or his interest will be limited to 250000 if he takes cash on the sale. Receivable collection is an income so 170000 will be income of Richard,

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