he's getting something of value but not being responsible for the debt anymore,

which means in the sale,

the total amount realized was $124,000.

Factor in his outside basis in the interest that he sold of a $105,000 and we

calculate a gain of $19,000.

In Part B, it asks,

"What is the character of any gain or loss if Sunchaser

has hot assets with a basis of zero

and a fair market value of $13,000 at the time of the sale?"

So, we're told there's hot assets that have zero basis and a fair market value of 13,000.

So in other words, a gain of $13,000 and he's a 30 percent partner and thus,

his share of that would be $3,900.

So earlier, we calculated in part A a total gain of 19,000 and if hot assets,

his portion of the sale of the hot assets,

the gain on that is $3,900,

then we know that he has ordinary income to recognize of $3,900.

So if the total gain is 19,000,

we're saying that the hot asset portion is 3,900 and thus ordinary income,

it means that he's going to recognize a capital gain for the difference.

In other words, we have assigned a character to the $19,000 of gain.

So, just to say it in another way,

the $19,000 of gain,

3,900 of it would be ordinary in character,

and 15,100 would be capital and character.

In part C, it says, "Assume the same facts as an A and B,

except the sales price was $82,800 and

we want to determine the amount and character of gain or loss if any.

So, we tackle this in the same way that we've done the other two parts.

We look at cash plus property received,

and here, this number has changed to 82,800,

factor in debt relief, 24,000.

We calculate an amount realized of 106,800,

and then subtract his adjusted basis or his outside basis of $105,000,

giving us a recognized gain of $1,800.

So, for a total gain here is now $1,800,

and since we're told to assume the facts of part B as well,

we have to consider the hot assets or in other words the $3,900 of ordinary income.

So, because we're required to recognize $3,900 of ordinary income

due to the hot assets but our total gain is only 1,800,

then that means there is a capital loss of the difference of 2,100.

So, when we add these two numbers up,

we get 1,800 matching our total gain.