Assume the same facts as in Problem 53. On the first day of the third tax year, the partnership sold the equipment for $150,000. The gain on the sale is allocated equally to the partners. The partnership distributes all cash in accordance with the partners’ capital account balances, and the partnership liquidates.

a. Calculate the partners’ bases in their partnership interests after reflecting any gain or loss on disposal of the equipment. Disregard any depreciation in year 3.

b. How will partnership cash balances be distributed to the partners upon liquidation?

c. What observations can you make regarding the value of a deduction to each partner?