Pat, Kelly, and Yvette are equal partners in the PKY Partnership before Kelly sells her partnership interest. On January 1 of the current year, Kelly€™s basis in her partnership interest, including her share of liabilities, was $35,000. During January, the calendar year partnership earned $15,000 ordinary income and $6,000 of tax-exempt income. The partnership has a $60,000 recourse liability on January 1, and this amount remains constant throughout the tax year. Kelly€™s share of that liability is $20,000. The partnership has no other liabilities. Kelly sells her interest on February 1 to Margaret for a cash payment of $45,000. On the sale date the partnership had the following assets:

The partnership has claimed $5,000 of depreciation on the building using the straight-line method.
a. What is Kelly€™s basis in her partnership interest on February 1 just before the sale?
b. What are the amount and character of Kelly€™s gain or loss on the sale?
c. What is Margaret€™s basis in her partnership interest?
d. What is the partnership€™s basis in its assets after the sale?

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Assets Partnership's Basis FMV Cash s 20,000 s 20,000 nventory 60,000 120,000 Building 36,000 40,000 Land 10,000 15.000 Total $195,000