EA2 Study Unit 11.1-11.2 Disposition of a Partner’s Interest

<p>As ordinary income. (A)</p> Signup and view all the answers

<p>Machine $165 Intangible $235 (A)</p> Signup and view all the answers

<p>All of the statements are true. (A)</p> Signup and view all the answers

<p>Archie should recognize a total gain of $1,500, with $1,000 classified as ordinary income. The sale of a partnership interest generally results in a capital gain or loss. The gain or loss is the difference between the amount realized and the adjusted basis of the partnership interest. The total gain would equal $1,500 ($5,000 amount realized – $3,500 outside basis). Only $1,000 of the gain would be classified as ordinary income ($2,000 appreciation of inventory × 50% ownership percentage).</p> Signup and view all the answers

<p>$0 (B)</p> Signup and view all the answers

<p>$12,000</p> Signup and view all the answers

<p>The remaining partners' distributive shares of partnership income are reduced by payments in exchange for a retiring partner's interest in partnership property. (D)</p> Signup and view all the answers

<p>$4,000 (C)</p> Signup and view all the answers

<p>Property 2 Basis is $16,000. Although the partnership usually does not adjust its basis for its retained property when it distributes other property to a partner, under Sec. 754, the partnership may elect to increase basis if the basis to the partnership of the distributed property exceeds the basis at which the distributee may take that property. In this case, the $1,000 ($11,000 basis of Property 1 - $10,000 basis of Mr. Gorda's partnership interest) that is “unused” in the basis of the distributed property may be added to the basis of Property 2 retained by the partnership. Thus, the basis of Property 2 is $16,000 ($15,000 basis of property 2 + $1,000 “unused” basis).</p> Signup and view all the answers

<p>$12,000 (B)</p> Signup and view all the answers

<p>Sales can result in capital gains/losses, while liquidations involve different rules for asset distributions and income recognition. (D)</p> Signup and view all the answers

<p>The cash received from the buyer, plus the relief of any liabilities assumed by the buyer. (D)</p> Signup and view all the answers

<p>$65,000 (B)</p> Signup and view all the answers

<p>The basis the partnership has in its assets. (A)</p> Signup and view all the answers

<p>In the year a partner's interest is transferred. (A)</p> Signup and view all the answers

<p>The difference between the transferee partner’s basis for the partnership interest and the proportionate share of the basis of all partnership property. (A)</p> Signup and view all the answers

<p>A partner sells their interest back to the partnership. (A)</p> Signup and view all the answers

<p>The partner's outside basis, or adjusted basis, in the partnership. (C)</p> Signup and view all the answers

<p>Only when the operations of the partnership cease. (B)</p> Signup and view all the answers

<p>As a distribution of assets immediately followed by the contribution of those assets to a new partnership. (C)</p> Signup and view all the answers

<p>Loans to the partnership, regardless of whether they are from general or limited partners, are paid before any partner's shares. (C)</p> Signup and view all the answers

<p>The tax year of the partnership closes only with respect to the deceased partner. (C)</p> Signup and view all the answers

<p>$26,000 (C)</p> Signup and view all the answers

<p>As an ordinary income or loss. (A)</p> Signup and view all the answers

<p>To the decedent on his or her final income tax return for items up to the date of death. (C)</p> Signup and view all the answers

<p>The nature of the property in the hands of the distributee. (B)</p> Signup and view all the answers

<p>A return must be filed for the short period, which is the period from the beginning of the tax year through the date of termination. (A)</p> Signup and view all the answers

<p>The basis is reduced by the partnership's adjusted basis of the receivables (typically zero). (A)</p> Signup and view all the answers

<p>It is not considered a sale, exchange, or liquidation of any partnership interest. (C)</p> Signup and view all the answers

<p>They are treated as a distributive share of partnership income. (D)</p> Signup and view all the answers

<p>Sell the building. (C)</p> Signup and view all the answers

<p>Distributing assets to partners before settling debts. (A)</p> Signup and view all the answers

<p>The amount due to their share of the partnership’s unrealized receivables or inventory items. (C)</p> Signup and view all the answers

<p>$15,000 to Partner D, and the remaining $45,000 split according to the profit/loss sharing agreement. (B)</p> Signup and view all the answers

Unrealized receivables must be allocated as ordinary income.

Realized gain becomes a capital gain after unrealized receivables are allocated.

Adjustment is the difference between the transferee's basis and the partnership's property basis.

Gains from inventory distributions are taxed as ordinary income if fair market value exceeds 120% of adjusted basis.

No loss recognized when property other than money, unrealized receivables, and inventory is distributed in liquidation.

The process of liquidating or transferring a partner's stake in a partnership.

The original value of a partnership interest adjusted for contributions or distributions.

A transaction where a partner receives cash or property in exchange for their partnership interest.

The increase in the fair market value of an asset not yet sold.

Distributing a partner's basis among the assets received during liquidation.

The carrying amount attributed to property received in a liquidation event.

A tax code section that addresses the basis of property distributed to a partner.

Realized gain occurs when an asset is sold, while recognized gain is reported on a tax return.

The transfer of a partner's interest in a partnership for cash or other assets.

Income that must be reported as ordinary income when inventory is sold or exchanged.

Losses are not recognized if property other than cash or inventory is received.

Determining the basis of equipment received in a non-liquidating distribution.

Cash received during the liquidation of a partnership interest.

A gain that must be reported on taxes due to distributions exceeding basis.

The classification of gain as either capital or ordinary for tax purposes.

A payment made to a retiring partner in exchange for their interest.

The cash component received in a partner's liquidating distribution.

The total value attributed to a partner's stake before adjustments.

The portion of partnership income or loss allocated to each partner.

Loss incurred during liquidation that must be classified for tax purposes.

A tax option for partnerships to adjust asset basis during a partner's liquidation.

The last tax return filed by a deceased partner or their estate.

The proportion of partnership income that belongs to a partner's estate post-death.

The classification of how different assets are taxed upon liquidation.

The requirement to report gain realized from selling partnership interest.

The total payments made to a partner when they liquidate their interest in a partnership.

The classification of property received in liquidation as capital or ordinary.

The process of selling or liquidating a partner's stake in a partnership.

The total value received from selling a partnership interest, including liabilities relief.

The selling price of a partnership interest includes liabilities relieved by the buyer.

A partner can sell their interest to another partner, an outside party, or the partnership itself.

The gain or loss on the sale is determined by subtracting adjusted basis from the amount realized.

The profit realized from selling partnership assets that are distributed to partners.

The sequence in which assets are distributed during a partnership liquidation.

Limited partners receive payment after general partners, but loans must be repaid first.

The result of selling partnership assets can lead to gains or losses.

A diagrammatic representation helps to remember liquidation procedures.

All debts of the partnership are to be settled before any distributions.

Partners divide the remaining assets after debts are paid in liquidation.

The tax treatment on the gain/loss depends on the property received.

A partnership terminates for federal tax purposes when operations cease.

A deceased partner's income is taxed on their final return until the date of death.

Payments to retired partners, determined by partnership income, are considered distributive shares.

Items allocated after death are the responsibility of the successor in interest.

Includes the distributive share of income earned by the partnership until partner's death.

Changing from a partnership to an LLC isn't treated as a sale or liquidation.

A return must be filed for the short period from the tax year's start to partner's termination.