Marty is a 40 percent owner of MB Partnership. Marty has decided to sell his interest in the business to Emilio for $100,000 cash plus the assumption of his share of MB's liabilities. Assume Marty's inside and outside basis in MB are equal. MB shows the following balance sheet as of the sale date:Assets:Basis FMVCash$160,000 $160,000Receivables50,000 50,000Inventory80,000 170,000Land held for investment60,000 40,000Totals$350,000 $420,000 Liabilities and capital:Liabilities$120,000Capital-Marty92,000 -Barry138,000Totals$350,000 What is the amount and character of Marty's recognized gain or loss?
What will be an ideal response?
$28,000 capital loss and $36,000 ordinary income.
| Amount realized: | |||||
| Cash | $100,000 | ||||
| Debt relief | 48,000 | $ | 148,000 | ||
| Less: basis in partnership interest (including liabilities) | (140,000 | ) | |||
| Marty's realized and recognized gain | $ | 8,000 | |||
To the extent Marty realizes any amounts attributable to hot assets, his gain will be classified as ordinary. If MB sold its assets for their fair market value at the sale date, the ordinary gain would be as follows:
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