Business tax exam 3

Which of these is a hot asset?

Depreciation recapture

Which of the following statements about income taxes owed by partners for partnership income is false?

Limited partners pay self-employment tax

Sandy has land purchased 2 years ago for investment and equipment that she acquired 7 months ago for personal use. She contributes both the land and equipment to the RockBottom’s Partnership in exchange for a partnership interest. Assuming that RockBottom’s will use both assets in its business, what is the character of each asset to the partnership?

It will be ordinary and then 1231 after one year of holding, since RockBottom’s will be using the assets for business purposes.

Alex receives a $50000 cash distribution while Jordan receives debt-free land with an adjusted tax basis of $500000 and a fair market value of $50000. Both distributions are operating distributions, and neither partner’s ownership percentage changes. Which statement correctly describes the tax consequences of these distributions?

Alex recognizes a $10,000 long-term capital gain, while Jordan recognizes no gain and takes a $40,000 tax basis in the land.

Which of the following is NOT treated as a flow-through entity for federal income tax purposes?

C Corp

What item does not decrease a partner's basis ?

Share of Tax Exempt Income

Which of the following is included when calculating a partner’s initial outside basis?

Tax basis of contributed property

When is Form 1065 generally due?

15th day of the third month

Which of the following increases a partner's outside basis?

Share of ordinary business income

Ben has a basis in his partnership interest of $25000. He receives a pro rata operating distribution of $30000 in cash. What is Ben’s tax basis, and what is the amount and character of his gain/loss?

Ben has a tax basis of $0 and recognizes a capital gain of $5,000.

Chose the false information

Contributing partner’s holding period in a partnership interest begins the day the partnership interest is acquired regardless of the type of property they contributed.

A corporation has average annual gross receipts of $40 million. How is its business interest expense deduction limited for tax purposes?

It is limited to business interest income plus 30% of adjusted taxable income, carrying forward unused deductions indefinitely.