James, Justin, and Joseph Are Equal Partners in the JJJ

question 65

Multiple Choice

James, Justin, and Joseph are equal partners in the JJJ Partnership. The partnership balance sheet reads as follows on December 31 of the current year: Partner Joseph has an adjusted basis of $45,000 for his partnership interest. If Joseph sells his entire partnership interest to new partner Kayla for $65,000 cash, how much capital gain and ordinary income must Joseph recognize from the sale?

• A) $20,000 ordinary income.
• B) $20,000 capital gain.
• C) $15,000 ordinary income; $5,000 capital gain.
• D) $45,000 ordinary income; $25,000 capital loss.
• E) None of the above.

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