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Aston and Becker are equal partners in AB Partnership. In the tax year, the ordinary income of the partnership is $20,000, and the partnership has a long-term capital gain of $12,000. Aston's basis in AB was $40,000, and he received distributions of $5,000 during the year. What is Aston's share of AB's ordinary income?
The question asks about Aston’s share of ordinary income. While Aston receives an equal share of the long-term capital gain, it will be taxed as a capital gain, not ordinary income. Distributions (especially non-liquidating) are generally not taxable. This leaves only Aston’s equal share of the $20,000 ordinary income, or $10,000.
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An individual partner received a Schedule K-1 from a partnership for year 2 reporting the following items:
Ordinary business income $45,000
Interest income 8,000
Net Section 1231 loss 5,000
Cash distribution 6,000
The cash distribution is not a taxable event. The remaining items are all included as additions or deductions from ordinary income: ordinary business income (addition), interest income (addition), and the net Section 1231 loss (deduction). Section 1231 gains and losses are usually treated as ordinary gains and losses.
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Which of the following is both an item that is an allowable tax deduction to the partnership, reported separately on the individual partner’s Schedule K-1, and then included on the partner’s individual tax return?
Guaranteed payments are roughly equivalent to salary payments to partners for services performed. As a result, they are a deductible operating expense to the partnership, reported as income on the individual partner’s tax return, and guaranteed payments are one of the items specifically reported on the Schedule K-1.
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The holding period of a partnership interest acquired in exchange for a contributed capital asset begins on the date:
The holding period of a partnership acquired in exchange for a contributed capital asset begins on the date the partner’s holding period of the capital asset began.
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On January 1, Year 2, ABC acquired a 50% interest in DEF Partnership by contributing property with an adjusted basis of $7,000 and a fair market value of $9,000, subject to a mortgage of $3,000. What was ABC’s basis in DEF at January 1, Year 2?
Basis $7,000 – Debt relief ($3,000 * 50%) $1,500 = $5,500 of basis.
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A gain that represents a partner’s share of “hot assets” would be treated as:
An exception to the sale of capital asset sales in partnerships would be when a “hot asset” is sold. The treatment here would be as ordinary income.
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