Question

R owns 60% of RJ partnership. J owns the other 40% of RJ Partnership. R sells property to RJ partnership for $1,000. He used the property as a capital asset. His tax basis in the property was $300. RJ partnership also uses the property as a capital asset.

- What are the income tax consequences to R upon the sale of the property to the partnership?

- Where would you search to obtain credible facts that answer this question?

Answer 1

Topic 409 of IRS deals with Capital Gains tax. Capital gains and losses are classified as long-term or short-term. Typically, an asset held for more than 1 year is long term and any asset held for less than 1 year is short term.

A capital gain rate of 15% applies if your taxable income is $78,750 or more but less than $434,550 for single; $488,850 for married filing jointly or qualifying widow(er); $461,700 for head of household, or $244,425 for married filing separately.

However, a net capital gain tax rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.

In the given case, R has sold the property to RJ Partnership and hence, capital gain tax arise in the hands of R.

One need to visit IRS Code to authenticate the facts presented in the answer above.