Partnership Taxation Quiz

Jackson is a 30 percent partner in the JMM Partnership when he sells his entire interest to Rhonda for $112,000. At the time of the sale, Jackson's basis in JMM is $64,000. JMM does not have any debt or hot assets. What is Jackson's gain or loss on the sale of his interest?

• $48,000 capital gain

• $48,000 ordinary income

• $24,000 capital gain and $24,000 ordinary income

• Gain or loss cannot be determined

Which of the following assets would not be classified as a hot asset?

• Inventory

• Cash

• Accounts receivable for a cash-method taxpayer

Daniel acquires a 30 percent interest in the PPZ Partnership from Paolo, an existing partner, for $39,000 of cash. The PPZ Partnership has borrowed $10,000 of recourse liabilities as of the date Daniel bought the interest. What is Daniel's basis in his partnership interest?

• $39,000

• $42,000

• $46,000

• $49,000

Under which of the following circumstances will a partner recognize a loss from an operating distribution?

• A partner will never recognize a loss from an operating distribution.

• A partner will recognize a loss from an operating distribution when the partnership distributes property other than money with an inside basis greater than the partner's basis in the partnership interest.

• A partner will recognize a loss from an operating distribution when the partnership distributes money in an amount that is less than the partner's basis in the partnership interest.

• A partner will recognize a loss from an operating distribution when the partnership distributes money in an amount that is greater than the partner's basis in the partnership interest.

Daniela is a 25 percent partner in the JRD Partnership. On January 1, JRD makes a proportionate liquidating distribution of $20,000 cash and inventory with a $15,000 fair value (inside basis $5,000) to Daniela. JRD has no liabilities at the date of the distribution. Daniela's basis in her JRD Partnership interest is $21,000. What is the amount and character of Daniela's gain or loss from the distribution?

• $0

• $14,000 ordinary income

• $4,000 capital loss

• $4,000 capital gain