• Jim, Liz and Keith are all equal partners in the JLK Partnership, which uses the accrual method of accounting. All three materially participate in the business. JLK reports financial accounting income of $186,000 for the current year. Note the rental real estate activities are not part of the partnerships normal course of business. The partnership used the following information to determine financial accounting income:

Description	Amount
Operating profit (excluding the items below)	$ 94,000
Rental income	30,000
Interest income Municipal bonds (tax exempt)	15,000
Interest income Corporate bonds	3,000
Dividend income (from 20% owned domestic corporation)	20,000
Gains on sale of land held as an investment	60,000
Long-term capital gains	10,000
Short-term capital losses	(7,000)
Sec. 1231 gains	9,000
Unrecaptured Sec. 1250 gain	44,000
Depreciation on rental real estate	12,000
Depreciation on machinery and equipment	27,000
Interest expense mortgage on rental property	18,000
Interest expense loans to acquire bonds	5,000
Guaranteed payments to Jim	30,000

The following additional information is available about the current years activities:

• The partnership received a $1,000 prepayment of rent for next year but has not recorded it as income for financial accounting purposes.
• Jim contributed the land to the partnership when his basis was $9,000 and the FMV at the date of contribution was $15,000. The partnership recorded the land for financial accounting purposes at $15,000. Hint: the gain will be different for books than for tax purposes.
• MACRS depreciation on the rental real estate and machinery and equipment were $12,000 and $29,000, respectively, in the current year.

Required:

1. What is JLKs taxable income?
2. What is JLKs ordinary income (loss)?
   • Hint: there are only 3 items for this column. Remember the ordinary income is at the partnership level.
3. What are JLKs separately stated items?
   • Hint: there are 13 items for this column. Remember to adjust any income, gains or depreciation for the value to allocate to the partners.

Transaction	Taxable Income (a)	Ordinary income (b)	Separately stated items (c)
Income:
Operating profit
Rental income
Interest on muni bonds
Interest on corporate bonds
Dividends
Gain on land investment
LTCG
STCL
Sec. 1231 gain
Unrecaptured Sec. 1250 gain
Subtotal (total income)
Expenses:
Depreciation
Mortgage interest
Investment bond loan
Guaranteed payment
Subtotal (total expenses)
Total income or (loss)	$ 186,000		n/a