Allison, Keesha, and Steven each own an equal interest in KAS Partnership, a calendar-year-end, cash-method entity. On January 1 of the current year, Steven’s basis in his partnership interest is $28,500. During January and February, the partnership generates $31,980 of ordinary income and $4,968 of tax-exempt income. On March 1, Steven sells his partnership interest to Juan for a cash payment of $48,300. The partnership has the following assets and no liabilities at the sale date: Tax Basis FMV
Cash $ 32,500 $ 32,500
Land held for investment 32,500 65,000
Totals $ 65,000 $ 97,500
a. Assuming KAS’s operating agreement provides for an interim closing of the books when partners’ interests change during the year, what is Steven’s basis in his partnership interest on March 1 just prior to the sale?
b. What is the amount and character of Steven’s recognized gain or loss on the sale?
Neither gain nor loss recognized
$7,320 ordinary income
$20,460 ordinary income
$7,320 capital gain
$20,460 capital gain
c. What is Juan's initial basis in the partnership interest?