Question

Newton is a one-third owner of ProRite Partnership. Newton has decided to sell his interest in the business to Betty for $76,500 cash plus the assumption of his share of ProRite’s liabilities. Assume Newton’s inside and outside bases in ProRite are equal. ProRite shows the following balance sheet as of the sale date:

			Tax Basis		FMV
Assets:
Cash		$	124,500		$	124,500
Receivables			37,250			37,250
Inventory			54,750			117,150
Land			32,750			19,850
Totals		$	249,250		$	298,750
Liabilities and capital:
Liabilities		$	60,000
Capital	– Newton		63,083
	– Barbara		63,084
	– Liz		63,083
Totals		$	249,250

What is the amount and character of Newton’s recognized gain or loss?

Answer 1