Reference no: EM132919135
A partnership started on January 1, YEAR 1 has two partners, Charlie and Linus. On the date the partnership initiated, Charlie and Linus had $25,000 of initial tax basis, respectively, and each had a 50 percent profits interest. Their respective initial tax bases each had $5,000 related to a loan (totaling $10,000) the partnership had taken out without collateral where each partner had signed to be personally responsible for $5,000 should the business profits not be enough to pay the debt off. On July 1, YEAR 1, Linus sold his profits and capital interest to Sally for $65,000. On the date of the sale, Linus's adjusted outside tax basis in his partnership interest was $45,000 (after adjusting his basis for items that increased or decreased his basis throughout the first half of the year). Charlie and Linus's profits interest didn't change between the partnership's initiation and July 1, YEAR 1. Sally would take on Linus's partnership interests and sign the same $5,000 responsibility for the business loan for which Linus had previously been responsible.
Problem a) At the time Linus sells his partnership interest, the partnership recognizes a gain (loss) of $_______.
Problem b) Sally's outside tax basis on July 1, YEAR 1 is $_______.
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