Question

In the current year, the pod partnership received revenues of $200,000 and paid the following amounts: $50,000 in rent and utilities and $20,000 as a distribution to partner olivia. in addition, the partnership earned $6,000 of long-term capital gains during the year. partner donald owns a 50% interest in the partnership. how much income must donald report for the tax year?

a. $68,000 ordinary income.
b. $78,000 ordinary income.
c. $65,000 ordinary income; $3,000 of long-term capital gains.
d. $75,000 ordinary income; $3,000 of long-term capital gains.

Answer 1

Donald must report $75,000 of ordinary income and $3,000 of long-term capital gains, representing his 50% share of the partnership's income after expenses and the capital gains for the year, respectively. Therefore, the correct option is D.

Step-by-step explanation:

To determine the amount of income that partner Donald must report for the tax year, we need to consider the partnership's total income, the expenses paid, and the share that Donald owns in the partnership. The partnership's total revenue for the year is $200,000, with the expenses totaling $50,000 for rent and utilities. These expenses reduce the partnership's taxable income, leaving it with $150,000 in ordinary income. Additionally, the partnership has $6,000 of long-term capital gains. The $20,000 distributed to partner Olivia is not a deductible expense for the partnership, but it is a distribution of the profits to her. Donald owns a 50% interest in the partnership, which means he is entitled to 50% of both the ordinary income and the capital gains.

Donald must report $75,000 of ordinary income, which is 50% of the $150,000, and $3,000 of long-term capital gains, which is 50% of the $6,000. Therefore, the correct answer is D. $75,000 of ordinary income; $3,000 of long-term capital gains.