Allison, Keesha, and Steven each own equal interests in KAS Partnership, a calendar year-end, cash-method entity. On January 1 of the current year, Steven's basis in his partnership interest is $28,250. During January and February, the partnership generates $31,650 of ordinary income and $4,890 of tax-exempt income. On March 1, Steven sells his partnership interest to Juan for a cash payment of $47,750. The partnership has the following assets and no liabilities at the sale date: Tax Basis FMV Cash $ 32,500 $ 32,500 Land held for 32,500 65,000 investment Totals $ 65,000 $ 97,500 a. Assuming KAS's operating agreement provides for an interim closing of the books when partners' interests change during the year, what is Steven's basis in his partnership interest on March 1 just prior to the sale? b. What is the amount and character of Steven's recognized gain or loss on the sale? Neither gain nor loss recognized $7,320 ordinary income $20,460 ordinary income $7,320 capital gain $20,460 capital gain c. What is Juan's initial basis in the partnership interest? d. What is the partnership's basis in the assets following the sale?
Allison, Keesha, and Steven each own equal interests in KAS Partnership, a calendar year-end, cash-method entity. On January 1 of the current year, Steven's basis in his partnership interest is $28,250. During January and February, the partnership generates $31,650 of ordinary income and $4,890 of tax-exempt income. On March 1, Steven sells his partnership interest to Juan for a cash payment of $47,750. The partnership has the following assets and no liabilities at the sale date: Tax Basis FMV Cash $ 32,500 $ 32,500 Land held for 32,500 65,000 investment Totals $ 65,000 $ 97,500 a. Assuming KAS's operating agreement provides for an interim closing of the books when partners' interests change during the year, what is Steven's basis in his partnership interest on March 1 just prior to the sale? b. What is the amount and character of Steven's recognized gain or loss on the sale? Neither gain nor loss recognized $7,320 ordinary income $20,460 ordinary income $7,320 capital gain $20,460 capital gain c. What is Juan's initial basis in the partnership interest? d. What is the partnership's basis in the assets following the sale?
Chapter14: Choice Of Business Entity—operations And Distributions
Section: Chapter Questions
Problem 21P
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Transcribed Image Text:Allison, Keesha, and Steven each own equal interests in KAS Partnership, a calendar year-end, cash-method entity. On
January 1 of the current year, Steven's basis in his partnership interest is $28,250. During January and February, the
partnership generates $31,650 of ordinary income and $4,890 of tax-exempt income. On March 1, Steven sells his
partnership interest to Juan for a cash payment of $47,750. The partnership has the following assets and no liabilities at
the sale date:
Tax
Basis
FMV
Cash
$ 32,500
$ 32,500
Land held for
32,500
65,000
investment
Totals
$ 65,000
$ 97,500
a. Assuming
KAS's
operating
agreement
provides for
an interim
closing of
the books
when
partners'
interests
change
during the
year, what is
Steven's
basis in his
partnership
interest on
March 1 just
prior to the
sale?
b. What is
the amount
and
character of
Steven's
recognized
gain or loss
on the sale?
Neither gain
nor loss
recognized
$7,320
ordinary
income
$20,460
ordinary
income
$7,320
capital gain
$20,460
capital gain
c. What is
Juan's initial
basis in the
partnership
interest?
d. What is
the
partnership's
basis in the
assets
following
the sale?
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