JESSICIA IS A 25 PARTNER IN THE JRL PARTNERSHIP ON JANUARY

JESSICIA IS A 25 % PARTNER IN THE JRL PARTNERSHIP. ON JANUARY 1, JRL DISTRIBUTES $40,000 CASH TO JESSICIA.

JRL HAS NO HOT ASSETS OR LIABILITIES AT THE DATE OF THE DISTRIBUTION.

JESSICA\'S BASIS IN JRL IS $28,000.

WHAT IS THE AMOUNT AND CHARACTER OF JESSICA\'S (GAIN OR LOSS) FROM THE DISTRIBUTION?

MULTIPLE CHOICE

1. $0

2. $12,000 ORDINARY INCOME

3. $12,000 CAPITOL LOSS

4. $12,000 CAPITOL GAIN

Solution

Correct Answer (D) $ 12000.00 Capital Gain

Explanation

Calculation of Capital Gain on Distribution

Total Amount Received

$ 40,000.00

Add- Liability in Partnership

$                 -  

Less- Basis in Firm

$ 28,000.00

Capital Gain

$ 12,000.00