Newton is a one-third owner of ProRite Partnership. Newton has decided to sell his interest in the business to Betty for $75,000 cash plus the assumption of his share of ProRites liabilities. Assume Newtons inside and outside bases in ProRite are equal. ProRite shows the following balance sheet as of the sale date:

				Tax Basis		FMV
Assets
Cash			$	114,500		$	114,500
Receivables				42,750			42,750
Inventory				49,000			111,250
Land				52,500			34,100
Totals			$	258,750		$	302,600
Liabilities and capital:
Liabilities			$	60,000
Capital	Newton			66,250
	Barbara			66,250
	Liz			66,250
Totals			$	258,750

What are the amount and character of Newtons recognized gain or loss?

multiple choice

• $20,750 of capital gain

• $20,750 of ordinary income and $12,000 of capital loss

• $20,750 of capital gain and $12,000 of ordinary gain

• $12,000 of capital Loss

• Neither gain nor loss recognized