Question

Partnership P ("P") has two individual partners (A and B).  Each are 50% owners in P.  At the beginning of Year 1, A's outside basis was $1,000 and B's outside basis was $10,000.  During Year 1 P earned $2,000 of income from operations, $1,000 of tax exempt income, and paid off $10,000 of a recourse liability.  What income, gain or loss, if any, will A report on A's individual income tax return (for Year 1) as a result of being a partner in P?

Answer 1

Any remuneration and Interest received from partnership firm by partner will be taxable in the hands of partners

but share of profits received from partnership firm will not be taxable in the hands of partners

in this case P has an income from operations $2000 and exempt income of $1000, i.e. total of $3000, Mr.A's share of profits will be 50% on $3000, i.e.$1500, which is taxed in the hands of partnership, it will be exempted in the hands of partners

and hence no income, gain/loss will be taxable in the hands of Mr.A's income tax return for year 1