Question: Michelle pays $120,000 cash for Brittany's one-third interest in the Westlake Partnership. Just prior to the sale, Brittany's basis in Westlake is $96,000. Westlake reports the following balance sheet:
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Tax Basis
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FMV
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Assets:
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Cash
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$96,000
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$96,000
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Land
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192,000
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264,000
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Totals
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$288,000
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$360,000
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Liabilities and capital:
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Capital
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- Amy
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96,000
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- Brittany
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96,000
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- Ben
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96,000
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Totals
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$288,000
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Required:
Q1. What is Michelle's basis in her partnership interest? What is Michelle's inside basis?
Q2. If Westlake were to sell the land for $264,000 shortly after the sale of Brittany's partnership interest, how much gain or loss would the partnership recognize?
Q3. How much gain or loss would Michelle recognize?
Q4. Suppose Westlake has a §754 election in place. What is Michelle's special basis adjustment?
Q5. Suppose Westlake has a §754 election in place. How much gain or loss would Michelle recognize on a subsequent sale of the land in this situation?
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