Mr and Ms Smith's Partnership Owns the Following Assets * Potential § 1245 Recapture of $45,000

question 108

Multiple Choice

Mr. and Ms. Smith's partnership owns the following assets: $\begin{array}{lrr}&\text { Adjusted Basis }&\text { Fair Market Value }\\\text { Accounts receivable } & \$-0- & \$ 60,000 \\\text { Inventory } & 20,000 & 30,000 \\\text { Machinery and equipment* } & 50,000 & 90,000 \\\text { Buil dings** } & 120,000 & 170,000 \\\text { Land } & 80,000 & 140,000 \\& \$ \mathbf{2 7 0 , 0 0 0} & \$ 490,000\end{array}$ * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used.
Mr) and Ms. Smith each have a basis for their partnership interest of $135,000. Calculate their combined recognized gain or loss and classify it as capital or ordinary if they sell their partnership interests for $500,000.

• A)$230,000 ordinary income.
• B)$230,000 capital gain.
• C)$115,000 ordinary income and $115,000 capital gain.
• D)$110,000 ordinary income and $120,000 capital gain.
• E)None of the above.

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Definitions:

Market Portfolio

A theoretical bundle of investments that includes every type of asset available in the market, with each asset weighted by its market capitalization.

Growth Rate

Growth rate signifies the percentage change of a specific variable within a specific time period, often used to indicate the expansion of a company's revenue or profit.

Risk-Free Rate

The theoretical rate of return on an investment with zero risk, often represented by the yield on government bonds.

Market Portfolio

A theoretical portfolio that includes all assets available in the market, with each asset weighted by its market capitalization.