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At the end of last year, Cynthia, a 20 percent partner in the five-person CYG partnership, has an outside basis of $28,500, including her $14,000 share of CYG debt. On January 1 of the current year, Cynthia sells her partnership interest to Roger for a cash payment of $21,500 and the assumption of her share of CYG's debt CYG has no hot assets. What is the amount and character of Cynthia's recognized gain or loss on the sale?
A. $7,000 capital loss.
B. $2,000 ordinary loss.
C. $7,000 capital gain.
D. $7,500 ordinary income.

Respuesta :

ayokenny2001

C. $7,000 capital gain

First, we need to find Net value of Cynthia's share

Net value of Cynthia's share = Value of share - Liabilities

Net value of Cynthia's share = $28,500 - $14,000

Net value of Cynthia's share = $14,500

The next step is to compute Cynthia's net value of her shares sold to Roger.

Then,

Cynthia's gain = Selling value - Net value of share

Cynthia's gain = $21,500 - $14,500

Cynthia's gain  = $7,000

Therefore,  the amount and character of Cynthia's recognized gain or loss on the sale is $7,000 capital gain.

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