The balance sheet of the ABC Partnership at December 31 of the current year is asfollows:

Assets:

Adjusted basis FMV

Cash $8,000 $8,000

Accounts receivable 24,000 24,000

Inventory 21,000 29,000

Land, buildings, and machinery 58,000 92,000 a

Total $111,000 $153,000

Liabilities and capital:

Accounts payable $6,000 $6,000

Notes payable 21,000 21,000

Arnold's capital account (1/3) 28,000 42,000

Brenda's capital account (1/3) 28,000 42,000

Carol's capital account (1/3) 28,000 42,000

Total $111,000 $153,000

***a

Assume that $4,000 would be ordinary income under the depreciation recapture rules, and $3,900 would be unrecaptured Sec. 1250 gain if the partnership sold the assets.

All partners have an equal interest in the partnership. Arnold sells his partnership interest to an outsider on December 31 of the current year for $42,000. Arnold's basis in the partnership interest is $37,000 (which includes Arnold's share of partnershipliabilities).

a.

What amount does Arnold realize on thesale?

b.

What are the amount and character of Arnold's recognized gain or loss on thesale?