32. LO.6 Linda is the owner of a sole proprietorship. The entity has the following assets.

Asset Basis FMV Cash $10,000 $10,000 Accounts receivable –0– 25,000 Office furniture and fixtures* 15,000 17,000 Building** 75,000 90,000 Land 60,000 80,000

* Potential depreciation recapture is $5,000.

** The straight-line method has been used to depreciate the building.

Linda sells the business for $260,000 to Juan.

a. Determine the tax consequences to Linda, including the classification of any recognized gain or loss.

b. Determine the tax consequences to Juan.

c. Advise Juan on how the purchase agreement could be modified to produce more beneficial tax consequences for him. Hint: Consider the use of a covenant not to compete.