Problem NO: 26

Fatima pays $120,000 cash for Brittany’s one-third interest in the Westlake Partnership. Just prior to the sale, Brittany’s basis in Westlake is $96,0

Fatima pays $120,000 cash for Brittany’s one-third interest in the Westlake Partnership. Just prior to the sale, Brittany’s basis in Westlake is $96,000. Westlake reports the following balance sheet:

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Assets: Tax Basis FMV

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Cash $ 96,000 $ 96,000

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Land 192,000 264,000

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   Totals $ 288,000 $ 360,000

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Liabilities and capital:

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Capital- Amy 96,000

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- Brittany 96,000

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- Ben 96,000

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  Totals $ 288,000

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a. What are the amount and character of Brittany’s recognized gain or loss on the sale?

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b. What is Fatima’s basis in her partnership interest? What is Fatima’s inside basis?

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c. If Westlake were to sell the land for $264,000 shortly after the sale of Brittany’s partnership interest, how much gain or loss would the partnership recognize?

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d. How much gain or loss would Fatima recognize if the land were sold for 264,000?

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e. Suppose Westlake has a §754 election in place. What is Fatima’s special basis adjustment? How much gain or loss would Fatima recognize on a subsequent sale of the land in this situation?

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