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26 Cards in this Set
- Front
- Back
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PARTNERSHIP FORMATION
Is there a gain if FMV > AB of contributed property? |
In general, no gain or loss is recognized by partner when contribute appreciated property to partnership
NON-RECOGNITION RULE OF GAIN |
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PARTNERSHIP FORMATION
When is gain recognized? |
when property contributed is subj to a liability
-result is decrease in indvl partner's liability exceeds partnership basis |
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PARTNERSHIP FORMATION
How will gain be treated? |
ordinary income
to extent property transferred was subj to depr recapture under Sec 1245 & Sec 1250 |
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PARTNERSHIP FORMATION
Partner gets % of partnership interest in exchange for services - what happens? |
Partner must recognize ORDINARY INCOME when a capital interest is recvd as compensation for services rendered (FMV of interest rcvd x %)
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PARTNERSHIP FORMATION
Holding period of partnership interest begins when? & includes what? |
depends on nature of contributed property
If Sec 1231 or capital asset, holding period includes the time that the sec 1231/capital asset was held by the partner -all other's - begins when the partnership interest is acquired -includes the period during which the property was held by the contributing partner |
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PARTNER'S BASIS
Partner receives 25% interest in partnership in exchange for services and asset with AB=25,000 FMV=40,000 FMV of 25% interest = 50,000 How much is P's basis in Partnership? |
P must recognize compensation income 50,000 -40,000=10,000
P's basis = 25,000 c/o basis in assets plus 10,000 income recognized for services = 35,000 |
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PARTNER'S BASIS
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BEG BASIS
+LONGER TERM CAPITAL GAIN -CASH DISTRIBUTIION =END BASIS ORD LOSS IS LIMITED TO BASIS |
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PARTNER'S & PARTNERSHIP BASIS
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Initial contribution
+/- Income/Loss -Cash/Property Distribution Recvd +% of Partnership Liabilities -Contributed Liabilities = Net OUTSIDE basis |
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PARTNER'S BASIS
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amount the partner has at risk in the partnership
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PARTNER'S BASIS
INCREASES |
+contribution of assets by partner to partnership
+debts incurred by partnership +allocation of partnership to partner |
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PARTNER'S BASIS
DECREASES |
-distributions of assets from partnership to partner
-allocation of partnership losses to partner -repayments/reductions of debt of the partnership |
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PARTNERSHIP FORMATION
Partner contributes cash What happens to basis? |
Basis is increased by amount paid
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PARTNERSHIP FORMATION
Partner contributes property What happens to basis? |
C/O Basis
FMV is ignored |
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PARTNERSHIP FORMATION
Partner contributes property with mortgage? What happens to basis? |
-Partner's net contribution is reduced
(decreases basis) -each partner's basis is increased by indvl shares of the liability the partnership has assumed |
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Partner gets 20% interest by contributing asset FMV=10,000 C/O AB = 4,000 MTGE = 6000
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-basis never goes negative
-cash distribution exceeds basis = gain -contributed asset subj to higher liability = gain INITIAL OUTSIDE BASIS (P'S C/O BASIS = 4,000 + % OF LIAB (6,000 X 20%) = 1200 -LIAB CONTR TO PTP -6000 = -800 GAIN, BASIS IS 0 |
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PARTNERSHIP
SEP STATED ITEMS |
-capital gains/losses-limit on cap loss
-section 1231 gains/losses-net cap gain -dividends and interest - limitation -passive activities - limitation -charitable contribution - must item to deduct/up to 50% of AGI -sec 179 election-$ limit / year -tax credits -limited to tax liability |
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PARTNERSHIP
GUARANTEED PAYMENT |
payment to partner for services or use of capital, like salary
-not based on partnership inc/loss -incld in determining ordinary income to partnership |
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PARTNERSHIP TAX YEAR
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-required to adopt the same tax year as that of the partners or a majority of partnership interests
-can have a tax year with valid business reason but limited to using one of 3 months prior to the required year end -result -up to 3 months of partnership income is deferred before being taxed on the returns of the partners |
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PARTNERSHIP OWNERSHIP
OF 50% OR MORE |
-Losses from sales of property between controlling partner and his partnership are not allowed
-Gains from sale of property is Ordinary Income |
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PARTNERSHIP DISTRIBUTION
Got cash & property that depreciated What gain must report? What is Ps basis in distribution? P's partnership interest 50,000 recvd cash distribution 20,000 property AB = 40,000 fmv = 35,000 |
P's beg basis 50,000
-20,000 (must be reduced by cash 1st, then property. Since cash does not exceed 50,000 basis in interest, no gain recognized -50,000 basis is reduced by cash recvd, 30,000 is basis for the property recvd |
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GUARANTEED PAYMENT
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-must be subtracted from partnerships business income before guaranteed payments to determine the net business income to be allocated to partners
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p's basis at beg of yr 60,000
p got cash 20,000 partnership - ord loss 65,000 net ltcg 15,000 What is P's loss for the year? |
beg basis 60,000
+ltcg 15,000 -20,000 cash 55,000 -ordinary loss is limited to 55,000, the rest 10,000 can be carried forward when P has enough basis |
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TERMINATION OF PARTNERSHIP
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-it no longer has at least 2 partners
-sale or exch of 50% or more of the total interests -merger - 50% -division - 50% |
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SALE OF PARTNERSHIP INTEREST
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-results in capital gain/loss
-gain is ordinary to extent of unrealized receivables or appreciated inventory |
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P has 25% in Partnership
beg AB - 20,000 recvd non-liquidating cash distribution 8,000 partnership: muni bond interest income 12,000 ordinary income 40,000 What is P's tax basis at end of year? |
20,000 ab
-8,000 cash (decrease) + (ord income 40,000 x 25%)=10,000 + (muni interest inc 12,000 x 25%=3000 |
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CONTROLLED PARTNERSHIPS
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Loss is disallowed - transaction between a partnership and a person owning more than 50% capital or profits
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