In Year 1 Abbey of Tax Year Rules contributes $100,000 for a 25% interest in the ABC General Partnership. The Partnership obtains a $4.0 Million recourse loan to finance construction of a building.
In Year 2 Abbey's distributive share of the Partnership's losses is $200,000. In Year 2 the fair market value of the building declines to $1.6 Million and the Partnership does not make any payments of Principal on the loan.
In Year 3 the total the partnership losses in total (before allocation to the Partners) are $400,000.
(a) Assuming that, Abbey sells 50% of her 25% Interest to Olivia for $1000 in cash on June 30, Year 3 - what is the amount of Abbey's gain or loss on sale of that Interest? Her distributive share of Partnership loss for Year 3?
(b) Assuming, instead, that Abbey sells her entire 25% Interest to Olivia for $2000 in cash on June 30, year 3 - what is the amount of Abbey's gain or loss on sale of that Interest? Her distributive share of Partnership loss for year 3?