Question

J owns an 80% interest in the capital and profits of the JL partnership. On April 1, 20x1, J bought from the partnership a warehouse that had been used in the business at its FMV of $60,000. The partnership's adjusted basis was $85,000. For the year ended Dec 31, 20x1, JL's net income was $105,000 after the $25,000 loss on the sale of the warehouse. What is J's share of the partnership's ordinary income for 20x1? A. $64,000 B. $84,000 C. $96,000 D. $104,000

Answer 1

Answer : D. $104,000.

Explanation:

Since J owns 80% interest in the capital and profits of the JL partnership, he is a controlling partner . Thus any losses arising from a transaction of sale of property between controlling partner & controlled partnership firm are disallowed for computing controlling partner's ordinary income from the that partnership.

J's share of the partnership's ordinary income for 20x1

= (JL's net income + loss on the sale of the warehouse) * J's interest in JL partnership

= ($105,000 + $25,000) * 80 % = $104,000