R3 M6 - Partnership Overview Flashcards
(9 cards)
Interest Income is a separately stated income
Interest expense on bank line of credit is an ordinary expense
Net Section 1231 loss is an ordinary expense
Net Section 1231 gain is an ordinary income
is net section 1231 an ordinary exp or income?
TBS - Interest exp is part of ordinary inc/exp while in other its considered separatley state inc ?
Is real estate tax paid part of ordinary inc/exp? q5 aTBS 2336
As a general partner in Greenland Associates, an individual’s share of partnership income for the current tax year is $25,000 ordinary business income and a $10,000 guaranteed payment. The individual also received $5,000 in cash distributions from the partnership. What income should the individual report from the interest in Greenland?
A. $5,000 B. $25,000 C. $35,000 D. $40,000
Choice “C” is correct. A partner must include in income their share of partnership income (even if not received) on their tax return in the taxable year within which the taxable year of the partnership ends. This income includes guaranteed payments.
Withdrawals/distributions are not a taxable event, yet will decrease the partner’s basis.
Choice “A” is incorrect. Cash distributions are not included in income.
Choice “B” is incorrect. Guaranteed payments are taxable income to the receiving partner.
Choice “D” is incorrect. Distributions are not income, since the money was taxed when the partnership earned such money, but would reduce the partner’s basis.
What is guaranteed payments?
Payments to partners for services rendered or the use of capital without regard to partnership income.
On January 1 of the current year, Kane was a 25% equal partner in Maze general partnership, which had partnership liabilities of $300,000. On January 2, a new partner was admitted and Kane’s interest was reduced to 20%. On April 1, Maze repaid a $100,000 general partnership loan. Ignoring any income, loss, or distributions for the current year, what was the net effect of the two transactions on Kane’s tax basis in Maze partnership interest?
A. Has no effect. B. Decrease of $35,000. C. Increase of $15,000. D. Decrease of $75,000.
If LLC makes an election on Form 8832 it will be treated as a C corporation
Single LLC = Disregarded entity for federal income tax purposes
Choice “D” is correct. Eligible expenditures up to $5,000 can be deducted in the first year (with overall limitations). Additional expenditures are amortized over 180 months beginning with the date they begin business. Legal fees to prepare the partnership agreement ($23,000) are eligible for this treatment, but sales and promotional expenses ($15,000) are not deductible or amortizable.
The first-year deduction is calculated as follows:
23,000
(5,000)
immediate deduction
18,000 / 180 months = $100 per month x 3 = 300 + 5,000 = $5,300
Dale’s distributive share of income from the calendar year partnership of Dale & Eck was $50,000 in Year 1. On December 15, Year 1, Dale, who is a cash-basis taxpayer, received a $27,000 distribution of the partnership’s Year 1 income, with the $23,000 balance paid to Dale in May Year 2. In addition, Dale received a $10,000 interest-free loan from the partnership in Year 1. This $10,000 is to be offset against Dale’s share of Year 2 partnership income. What total amount of partnership income is taxable to Dale in Year 1?
A. $27,000 B. $37,000 C. $50,000 D. $60,000
Explanation
Choice “C” is correct. The total amount of partnership income taxable to Dale in Year 1 is $50,000, which is his distributive share of partnership income.
A partner must include his allocated share of partnership income, even if not received in cash, in his tax return for his taxable year (usually calendar year) within which the taxable year of the partnership ends.
Choice “A” is incorrect. This answer is the cash distribution.
Choice “B” is incorrect. This answer is the cash distribution plus the loan amount.
Choice “D” is incorrect. This answer is the correct distributive share of $50,000 plus the loan amount of $10,000.
Purchase of Land for investment:
The purchase of an asset does not affect the income of the partnership and has no effect on a partner’s basis
