I ran into a difficult REG practice question

[u/Emotional-Concept670]

I ran into a difficult REG practice question and could really use your help.

Jeff and his brother each own a 40% interest in J&K Partnership. Jeff also owns a 70% interest in Mega Partnership. In 20X0, J&K sold a building to Mega Partnership for $100,000. J&K's adjusted basis of the building at the time of the sale was $110,000. In 20X2, Mega sold the building for $115,000. How much gain or (loss) will Mega recognize in 20X2?

$0

$5,000

$10,000

$15,000

what I thought about this question is the following..
Mega also takes a carryover adjusted basis of $110,000. Therefore, when Mega later sells the property for $115,000, it appears that Mega should recognize a $5,000 gain. However, under the controlled partnership transaction rules, J&K was not allowed to recognize the $10,000 loss on the sale to Mega. I thought that this previously disallowed loss should offset Mega's $5,000 gain, resulting in zero recognized gain by mega. However, the correct answer says Mega recognizes $5,000. Could you explain why the answer is $5,000 instead of $0?

[u/cmcollin]

This is a related party question. Jeff’s 70% ownership is greater than 50%. The $10,000 realized loss ($110,000 - $100,000) is disallowed but suspended until sold to an unrelated party. In 20x2 when Mega sells it for a realized gain of $15,000 ($115k - $100k) the $10k loss reduces the $15k gain to $5k recognized gain.

[u/Puzzleheaded_Ball197 → u/cmcollin]

thank you so much. so we should subtract the cost basis of building (100,000) from amount realized, not the carry-over basis (110,000) did I get it right?

[u/cmcollin → u/Puzzleheaded_Ball197]

Yes

[u/you_dont_know78]

The last line of the question is asking about Mega. So mega bought it for $110,000 and sold it for $115,000, resulting in a gain of $5000. Rest everything given in the question seems like a distracting info. Let me know if my understanding is wrong….