Mr and Ms Smith's Partnership Owns the Following Assets * Potential § 1245 Recapture of $45,000

Multiple Choice

Mr. and Ms. Smith's partnership owns the following assets: $\begin{array}{lrr}&\text { Adjusted Basis }&\text { Fair Market Value }\\\text { Accounts receivable } & \$-0- & \$ 60,000 \\\text { Inventory } & 20,000 & 30,000 \\\text { Machinery and equipment* } & 50,000 & 90,000 \\\text { Buil dings** } & 120,000 & 170,000 \\\text { Land } & 80,000 & 140,000 \\& \$ \mathbf{2 7 0 , 0 0 0} & \$ 490,000\end{array}$ * Potential § 1245 recapture of $45,000. ** Straight-line depreciation was used.
Mr) and Ms. Smith each have a basis for their partnership interest of $135,000. Calculate their combined recognized gain or loss and classify it as capital or ordinary if they sell their partnership interests for $500,000.

A) $230,000 ordinary income.
B) $230,000 capital gain.
C) $115,000 ordinary income and $115,000 capital gain.
D) $110,000 ordinary income and $120,000 capital gain.
E) None of the above.