Partnership

Eric and Denise are partners in ED Partnership. Eric owns a 60% capital, profits and loss interest. Denise owns the remaining interest. Both materially participate in the partnership activities. At the beginning of the current year, ED’s only liabilities are $50,000 in accounts payable, which remain outstanding at year-end. In August, ED borrowed $120,000 on a nonrecourse basis from Delta Bank. The loan is secured by property with a $230,000 FMV. These are ED’s only liabilities at year-end. Basis for the partnership interest at the beginning of the year is $40,000 for Denise and $60,000 for Eric before considering the impact of liabilities and operations. ED has a $200,000 ordinary loss during the current year. How much loss can Eric and Denise recognize?

Problem 6Linda pays $100,000 cash for Jerry’s ¼ interest in the JILL Partnership. The partnership has a Sec. 754 election effect. Just before the sale of Jerry’s interest, JILL’s balance sheet appears as follows:Partnership’s Basis FMVAssets:Cash $75,000 $75,000Land $225,000 $325,000Total $300,000 $400,000Partners’ capitalJerry $75,000 $100,000Instrument Corp $75,000 $100,000Logo Corp $75,000 $100,000Lighthouse Corp $75,000 $100,000Total $300,000 $400,000

a. What is Linda’s total optional basis adjustment?b. If JILL Partnership sells the land for its $325,000 FMV immediately after Linda purchases her interest, how much gain or loss will the partnership recognize?c. How much gain will Linda report as a result of the sale?