Question

Juan Diego began the year with a tax basis in his partnership interest of $50,000. During the year, he was allocated $20,000 of partnership ordinary business income, $70,000 of §1231 losses, and $30,000 of short-term capital losses and received a cash distribution of $50,000. What items related to these allocations does Juan Diego actually report on his tax return for the year? [hint: see regulations §1.704-1(d)(2) and revenue rule 66-94.]

Options:
Option 1: Partnership income and losses
Option 2: Only partnership income
Option 3: Partnership income and cash distribution
Option 4: Only cash distribution

Answer 1

Juan Diego will report partnership income and cash distribution on his tax return for the year.

Step-by-step explanation:

Juan Diego will report partnership income and cash distribution on his tax return for the year. According to regulations §1.704-1(d)(2) and revenue rule 66-94, Juan Diego must report his share of partnership income and losses on his tax return. In this case, he was allocated $20,000 of partnership ordinary business income and $70,000 of §1231 losses. Additionally, he received a cash distribution of $50,000, which is also reported on his tax return.