Selling Partnership Interest: A Profitable Deal!

What are the tax consequences to Ashton of the sale of her partnership interest?

Answer:

$75,000 capital gain

Explanation:

Ashton's basis at sales = Beginning basis + Share of income - Cash distribution = $125,000 + $45,000 - $15,000 = $155,000.

Capital gains : Sales proceed + Liability - Basis at sales = $200,000 + $30,000 - $155,000 = $75,000 gain.

Ashton's decision to sell her interest in XYZ partnership turned out to be a profitable deal! By selling her partnership interest to Wayne for $200,000 in cash and a release of liability of $30,000, Ashton realized a capital gain of $75,000.

Let's break down the tax consequences of this transaction. Ashton's basis at the beginning of the year was $125,000, including the $30,000 liability. Through November 1, her share of income was $45,000, and she had received a $15,000 cash distribution earlier in the year.

Calculating her basis at the time of the sale, we get: $125,000 + $45,000 - $15,000 = $155,000. This means that Ashton's capital gains from the sale amounted to $200,000 (sales proceed) + $30,000 (liability) - $155,000 (basis at sales) = $75,000 gain.

Therefore, Ashton's tax consequences from selling her partnership interest result in a capital gain of $75,000. What a successful transaction!