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 ultimately recognize ordinary income of $20 and capital gain of $10.

                                                Basis                                      FMV

Cash                      $15                                         $15

                Inventory            $15                                         $35

                Land                      $40                                         $50

                                                $70                                         $100

True

False

Explanation / Answer

When a partnership interest is sold, gain or loss is determined by the amount of the sale minus the partner's interest, which is often referred to as the partner's outside basis.

Patnership interest sale =$100, Partner's interest=70(15+15+40)

So, Gain is 100-70=30

Out of 30 above , capital gain is 50-40=$10 and ordinary income = 35-15=$20

So Answer is TRUE.

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