Advanced Tax Exam 3.docx - Chapter 10 Schedule K and K-1 Income and expenses related to trade or business activities are combined reported as one number

Advanced Tax Exam 3.docx - Chapter 10 Schedule K and K-1...

This preview shows page 1 - 3 out of 20 pages.

Chapter 10 Schedule K and K-1 - Income and expenses related to trade or business activities are combined; reported as one number on each partner’s Schedule K-1 (1065: Line 22) - Separately stated items (1065: Schedule K) - Could affect any two partners’ tax liabilities in different ways (often items that are subject to limitations) - Reported separately on each partner’s Schedule K-1 - Examples: Charitable contributions, capital gains/losses, dividend income, expenditures that could be treated as itemized deductions Partner’s Basis - Each year, basis is increased by the partner’s proportionate share of - Partnership income, including capital gains and tax-exempt income - Any increase in partnership liabilities - Each year, basis is decreased by the partner’s proportionate share of - Partnership deductions and losses, including capital losses - Nondeductible expenses - Any reduction in partnership liabilities Contributing Property to a Partnership - In general: gains and losses on property transferred to a partnership in exchange for partnership interest are deferred - Exceptions: - Appreciated stocks contributed to an investment partnership - Taxable exchange of properties ( Example 7 ) - Disguised sale of properties ( Example 8 ) - Interest received in exchange for services rendered - Contribution of property: - Partnership’s basis in asset = carryover basis, holding period also carries over - Partner’s basis in partnership interest = substitute basis EXAMPLE: 28. Emma and Lane form the equal EL partnership. Emma contributes cash of $100,000. Lane contributes property with an adjusted basis of $40,000 and a fair market value of $100,000. How much gain, if any, must Emma recognize on the transfer? How much gain, if any, for Lane? $100,000 - $40,000 = $60,000 realized gain / $0 recognized gain Emma = $0 gain Lane = $0 gain What is Emma’s basis in her partnership interest? $100,000 What is Lane’s basis in his partnership interest? $40,000 What basis does the partnership take in the property transferred by Lane? $40,000
Image of page 1
Partnership Allocations - Contribution to a partnership allows for deferred gains and losses - When the property is later disposed of by the partnership, the pre-contribution gains and losses are allocated in a manner that accounts for the variation between the basis of the property and its FMV on the date of contribution EXAMPLE: 42. Phoebe and Parker are equal members of Phoenix Investors, LLC. They are real estate investors who formed the LLC several years ago with equal cash contributions. On January 1, Reece contributed some land she held for investment to acquire a 1/3 interest in Phoenix. Reece purchased the land five years ago for $75,000. Its FMV on January 1 was $90,000. LLC Interest $90,000 (Basis) ($75,000) $15,000 realized gain $0 recognized gain What is Reece’s basis in her interest in the LLC? $75,000 What is the LLC’s holding period for the land?
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 20 pages?

  • Spring '10
  • CRAIG
  • Corporation, Generally Accepted Accounting Principles, Retiring Partner

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture