Under the hypothetical sale approach, if a partnership interest is sold for $100

Question

Under the hypothetical sale approach, if a partnership interest is sold for $100 with basis in the interest of (see below), the selling partner would report on his personal tax return a capital gain of $30.

                                                Basis                                      FMV

Cash                      $15                                         $15

                Inventory            $15                                         $35

                Land                      $40                                         $50

                                                $70                                         $100

True

False

Explanation / Answer

This is true

Under hypothetical sale approach, it calculates the amount each partner would receive if the partnership were liquidated at book value at the end of measurement period.

The change in allocated amount to each partner during the period is book income/loss allocated to that partner .

Therefore, the selling partner would report on his personal tax return a capital gain of $ 30.

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