Question

Travis and Alix Weber are equal partners in the Tralix Partnership, which does not have a §754 election in place. Alix sells one-half of her interest (25 percent) to Michael Tomei for $34,500 cash. Just before the sale, Alix’s basis in her entire partnership interest is $80,400, including her $34,500 share of the partnership liabilities. Tralix’s assets on the sale date are as follows:

		Tax Basis		FMV
Cash	$	44,050		$	44,050
Inventory		34,500			108,000
Land held for investment		82,250			51,800
Totals	$	160,800		$	203,850

a. What are the amount and character of Alix’s recognized gain or loss on the sale? (ordinary income and capital loss)

b. What is Alix’s basis in her remaining partnership interest?

c. What is Michael’s basis in his partnership interest?

d. Does the sale on partnership's basis have any effect in the assets?

Answer 1

Solution

a) Amount Realized:

Cash                      $34500

Debt                      $17250 (34500/2)

$51,750

Less: Basis in Partnership (1/2 of $80,400)            ($40,200)

Alix’s realized and recognized gain                         $11,550

If Tralix sold its assets for their Fair Market Value at the sale date, the ordinary gain would be as follows:

                                                Tax Basis                              FMV                      Gain/ Loss                           Alix’s 25%

Inventory $34,500                             $108,000                  $73500                                  $18,375

Total Gain                            $11,550

Less: Ordinary Gain ($18,375)

Capital Loss                         $(6825)

Alix recognizes $18,375 of ordinary income and a $6825 capital loss from the sale of her half interest in Tralix.

b) Alix has a remaining basis in Tralix of $40,200 (25% of $160,800).

c) Michael’s basis in Tralix is $51,750 i.e $34,500 cash plus $17,250 for his share in debt.

d) The sale has no effect on Tralix’s basis in its assets.

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