B what will be the balance in his capital account on

b. What will be the balance in his capital account on the partnership’s tax basis
balance sheet at the end of Year 5?
c. What is Farley’s tax basis in his partnership interest at the end of year 5? (Assume
the partnership has total liabilities of $500,000, as in question 3 above). Which
capital account must Farley’s tax preparer be able to access in order to compute
his basis in the partnership interest (and thus the proper amount of gain to
recognize in connection with sale of that interest)?
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Practical Guide to Partnerships and LLCs—Instructor’s Guide Solutions 4
d. How much gain will Farley recognize in connection with sale of his interest?
5. Class Time Partners is a general partnership with the following balance sheets:
Basis FMV
Cash $15,000 $15,000
Capital assets 35,000 75,000
Land 85,000 240,000
Totals $135,000 $330,000
Recourse liabilities $90,000 $90,000
Capital, Claire 15,000 80,000
Capital, Lorie 15,000 80,000
Capital, Tom 15,000 80,000
Totals $135,000 $330,000
The partners share equally in profits, losses and capital. Tom is negotiating to sell
one-half of his interest in the partnership to an unrelated buyer. Assume the buyer is
willing to pay $50,000 cash for half Tom’s interest.
a. What will be the amount realized by Tom on the sale?
b. What is the tax basis of the interest to be sold by Tom? c. How much gain will Tom recognize on the sale? d. What will be the buyer’s tax basis in the newly acquired interest?
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Practical Guide to Partnerships and LLCs—Instructor’s Guide Solutions 5
Reading:
Paragraphs 1104, 1105.