Let's analyze the problem step-by-step: --- ### **Given Data:** - **Parcel of land value (basis):** \$100,000 - **Partnership value:** \$160,000 - **Ownership interest:** 60% - **Land is inventory to the partnership** (implying it is held for sale to customers) ### **Objective** Determine the **taxable gain income** resulting the transaction. --- ### **Step 1: Understand the transaction** Paul sells a parcel of land to a partnership: - **Land's basis (cost):** \$100,000 - **Sale price (partnership value):** \$160,000 - **Ownership interest in partnership:** 60% - **Land is inventory:** The land is inventory (held for sale). --- ### **Step 2: Determine the nature of the gain** Since the land is inventory, the sale is considered part of the partnership's normal business operations, and the gain is **ordinary income**. --- ### **Step 3: Calculate the gain** The gain is the difference between the sale price and the basis: \[ \text{Gain} = \text{Sale Price} - \text{Basis} = \$160,000 - \$100,000 = \$60,000 \] --- ### **Step 4: Recognize the income** Because the land is inventory, **the gain is recognized as ordinary income** to the partnership. Thus, **the partnership will recognize \$60,000 of ordinary income**. --- ### **Step 5: Final answer** The correct choice is: > **$60,000 ordinary income.** --- ## **Summary:** | Step | Explanation | Result | |---|---|---| | 1 | Land is inventory, sold to partnership | Recognize gain as ordinary income | | 2 | Calculate gain: sale price - basis | \$160,000 - \$100,000 = \$60,000 | | 3 | Income recognized | **\$60,000 ordinary income** | --- **Final answer:** ### **\$60,000 ordinary income.**