Question

Gladys Peel owns a 50% interest in the capital and profits of the partnership of Peel and Poe. On July 1, 2019, Peel bought land the partnership had used in its business for its fair market value of $10,000. The partnership had acquired the land five years ago for $16,000. For the year ended December 31, 2019, the partnership's net income was $94,000 after recording the $6,000 loss on the sale of land. Peel's distributive share of ordinary income from the partnership for 2019 was ________.

Answer 1

Answer:

$50,000

Explanation:

Data provided in the question:

Interest owned by Gladys Peel in the capital and profits of the partnership  = 50%

Fair market value = $10,000

Value of the land acquired = $16,000

Partnership's net income = $94,000

Loss recorded = $6,000

Now,

The loss must be separately passed through to partners as it is a Sec. 1231 loss.

Therefore,

Partnership ordinary income = $94,000 + $6,000

= $100,000

Hence,

Peel's distributive share of ordinary income from the partnership for 2019

= 50% of Partnership ordinary income

= 0.50 × $100,000

= $50,000