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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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Passive activity losses of an individual taxpayer can generally be used to offset
Income from the rental of residence is considered passive activity, and as such passive activity losses may be taken up to the extent of passive activity gains. None of the other items are regarded as passive activity income: guaranteed payments are treated as ordinary income; dividends and interest are treated as portfolio income (a distinct category from passive income).
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A partner in a real estate partnership had a basis of $5,000 at the beginning of the year and a basis of $10,000 at year end. The partner's at-risk amount at year end was $8,000. The partner's Form K-1 listed $12,000 as the partner's share of the partnership's ordinary loss. What amount can the partner deduct on the partner's tax return?
For flow-through entities issuing Schedule K-1 to its partners, an individual partner’s loss limitation cannot exceed the at-risk amount. Any excess loss may be carried forward by the partner indefinitely. Since this partner’s at-risk amount is $8,000, the deducted loss cannot exceed $8,000
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Alan created a trust for the benefit of his son, George. Alan does not have the right to change any terms of the trust once established and has no right to income. All trust income is to be distributed to George on an annual basis. How should the trust income be reported?
For estates and trusts, only income to beneficiaries is report on Form 1041 and Schedule K-1. Since George is the beneficiary, he is the recipient of the Schedule K-1, not his father.
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A and B are equal members in AB LLC which has not elected to be treated as a corporation. A contributes cash of $7,000 and B contributes a machine with an adjusted basis of $5,000 and FMV of $10,000, subject to a liability of $3,000. What is B’s basis in AB LLC?
The LLC has not elected to be treated as a corporation. Therefore, it will be treated as a partnership. B’s basis will be the adjusted basis of the contributed property minus 50% of the liability which is assumed by the other partner. $5,000 - $1,500 = $3,500.
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ABC Inc is an S corporation that pays single coverage health insurance premiums of $4,8000 per year and family coverage premiums of $7,200 per year. A is a 10% shareholder in the S corp. On A’s behalf, ABC pays A’s family coverage under the health insurance plan. What amount of insurance premiums is includable in A’s gross income?
Fringe benefits paid by an S corp are deductible by the S corp only for non-shareholder employees and those employee-shareholders owning 2% or less of the S corp.
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In a complete liquidation of a partnership, a partner would recognize a gain:
The partner would likely not recognize a gain or loss in complete liquidation unless the money received exceeds the partner’s basis.
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On January 1, Smith sold land to Baker for $100,000 cash plus a note for $200,000 plus adequate interest with a $30,000 principal payment due in the second year. Smith's basis in the property was $100,000. What is the amount of the gain recognized in the second year under the installment method?
Smith’s basis in the land was $100,000, and he sold the land for $300,000 (cash plus the note). As a result, under the installment method, 2/3 of all cash received is treated as a gain (with the other 1/3 a return of Smith’s original basis in the land). With the receipt of $30,000 in the second year, 2/3 (=$20,000) is treated as a gain.
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Which of the following is taxable as gross income?
For a divorce finalized on or before Dec. 31, 2018, alimony received is included in gross income. For divorces finalized after this date, alimony is not included in gross income. Child support is never included in gross income.
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Dot, an employee of Acme C Corporation, is not a shareholder. Which of the following would be included in a taxpayer’s gross income?
Gifts, inheritance, and medical insurance are not included in gross income. Dividend income is the only item that is regularly included in gross income.
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Which of the following costs is not included in inventory under the Uniform Capitalization rules for goods created by the taxpayer?
Uniform Capitalization rules provide guidelines with respect to capitalizing or expensing certain costs. With regard to inventory, direct materials, direct labor, and factory overhead should be capitalized as part of the cost of inventory.
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Which of the following costs are subject to the Uniform Capitalization Rules of Code Sec 263A for manufactured tangible personal property?
Costs required to be capitalized under the uniform capitalization rules include direct materials, direct labor, and applicable indirect costs. Applicable indirect costs include utilities, warehousing costs, repairs, maintenance, indirect labor, rents, storage, depreciation, and others.
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If a partnership’s business and financial operations are discontinued, would it be considered terminated for income tax purposes?
A partnership is considered terminated under a few circumstances, one being if the operations of it are ceased.
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