The AB partnership, a cash method, calendar year partnership, had the following income and expenses for the past calendar year:

(1) Gross income from business operations $130

(2) Expenses deductible under Sec. 162(a)    40

(3) Depreciation on machinery (calculated under the 200% declining balance method    30

(4) Charitable gifts    20

(5) Gain on sale of equipment used in the partnership’s business, $20 of which is ordinary under Sec. 1245(a), and $10 of which is Sec. 1231 gain  30

(6) Short-term capital gain on stock sale  10

(7) Interest on tax exempt bonds  40

(8) Dividends on stock  20

(9) Gain on the sale of land held for 4 years by the partnership for investment purposes 100

 

A and B are equal partners who use the cash method and the calendar year.

1) How will the partnership, A and B report these items?

2) Would the treatment of the gain in item (9) be different if A were a dealer in real estate?  Assume in the alternative, that the partnership acquired the land (i) from A as a contribution to the partnership, or (ii) by purchase from a third party.

3) A’s adjusted basis for their partnership interest was $20 at the beginning of this taxable year of the partnership.  What would be their adjusted basis at the end of the year if the partnership made no distributions to the partners during the year?

4) How would your answer in question 3) differ if on March 1 the partnership distributed $40 to each of the partners?