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Marco, Jaclyn, and Carrie formed Daxing Partnership (a calendar-year-end entity) by contributing cash 10 years ago. Each partner owns an equal interest in the partnership and has an outside basis in his/her partnership interest of $104,000. On January 1 of the current year, Marco sells his partnership interest to Ryan for a cash payment of $137,000. The partnership has the following assets and no liabilities as of the sale date:
Tax Basis FMV
Cash $ 18,000 $ 18,000
Accounts receivable 0 12,000
Inventory 69,000 81,000
Equipment 180,000 225,000
Stock investment 45,000 75,000
Totals $ 312,000 $ 411,000
The equipment was purchased for $240,000, and the partnership has taken $60,000 of depreciation. The stock was purchased seven years ago.
4.
value:
1.00 points
Required information
a. What are the hot assets [§751(a)] for this sale? (Select all that apply.)
Accounts receivable
Inventory
Stock investment
Potential depreciation recapture in the equipment
References
eBook & Resources
Difficulty: 2 MediumLearning Objective: 21-01 Determine the tax consequences to the buyer and seller of the disposition of a partnership interest, including the amount and character of gain or loss recognized.
5.
value:
1.00 points
Required information
b. What is Marco’s gain or loss on the sale of his partnership interest?
References
eBook & Resources
ProblemDifficulty: 2 MediumLearning Objective: 21-01 Determine the tax consequences to the buyer and seller of the disposition of a partnership interest, including the amount and character of gain or loss recognized.
Check my work
6.
value:
1.00 points
Required information
c. What is the character of Marco’s gain or loss?
$23,000 ordinary income and $10,000 capital gain
$10,000 ordinary income and $23,000 capital gain
$33,000 ordinary income
$33,000 capital gain
None of these
References
eBook & Resources
Difficulty: 2 MediumLearning Objective: 21-01 Determine the tax consequences to the buyer and seller of the disposition of a partnership interest, including the amount and character of gain or loss recognized.
Check my work
7.
value:
1.00 points
Required information
d. What are Ryan’s inside and outside bases in the partnership on the date of the sale?

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Answer:

I have no idea

Explanation:

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anthougo

a) The hot assets according to [§751(a)] for this sale are:

  • a. Accounts receivable
  • b. Inventory
  • d. Potential depreciation recapture in the equipment.

b) Marco’s gain or loss on the sale of his partnership interest is $33,000 ($137,000 - $104,000).

c) The character of Marco’s gain or loss is d. $33,000 capital gain.

d) Ryan’s inside and outside bases in the partnership on the date of the sale are $137,000 ($411,000/3).

What are hot assets in a partnership?

Hot assets refer to these assets: "unrealized receivables" and "inventory items," which generate ordinary business income when sold.

The hot assets also include, in this instance, the "unrealized depreciation recapture" in the equipment of the partnership.

Data and Calculations:

                                 Tax Basis      FMV

Cash                         $ 18,000   $ 18,000

Accounts receivable            0      12,000

Inventory                    69,000      81,000

Equipment                180,000   225,000

Stock investment      45,000      75,000

Totals                    $ 312,000  $ 411,000

Question Completion:

The equipment was purchased for $240,000, and the partnership has taken $60,000 of depreciation. The stock was purchased seven years ago.

a. What are the hot assets [§751(a)] for this sale? (Select all that apply.)

a. Accounts receivable

b. Inventory

c. Stock investment

d. Potential depreciation recapture in the equipment

b. What is Marco’s gain or loss on the sale of his partnership interest?

c. What is the character of Marco’s gain or loss?

a. $23,000 ordinary income and $10,000 capital gain

b. $10,000 ordinary income and $23,000 capital gain

c. $33,000 ordinary income

d. $33,000 capital gain

e. None of these

d. What are Ryan’s inside and outside bases in the partnership on the date of the sale?

The hot assets according to [§751(a)] for this sale are Accounts receivable, Inventory, and the potential depreciation recapture in the equipment because they generate ordinary business income when sold.

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