38. Newton is a one-third owner of ProRite Partnership. Newton has decided to sell his interest in the business to Betty for $50,000 cash plus the assumption of his share of ProRite’s liabilities. Assume Newton’s inside and outside bases in ProRite are equal.
ProRite shows the following balance sheet as of the sale date:
Tax Basis FMV Assets Cash $ 80,000 $ 80,000 Receivables 25,000 25,000 Inventory 40,000 85,000 Land 30,000 20,000 Totals $175,000 $210,000 Liabilities and capital Liabilities $ 60,000 Capital—
Newton 38,333 —
Barbara 38,334 —Liz 38,333 Totals $175,000 What is the amount and character of Newton’s recognized gain or loss?