REG 2021 Released Questions – please help!

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  • #3303745
    Chloe
    Participant

    From the most recent testlet, the question says…

    Which of the following is true about taxation of a partner in a partnership?
    a. Partners must include their share of partnership capital gains as ordinary income on their personal income tax returns.
    b. If a partner's loss is limited on one tax year because of the at-risk rules, it may be carried forward to a later year, subject to that year's at-risk
    computation.
    c.
    d.

    The answer is b but can please someone explain why the answer is not a?

    #3303754
    CPAHOPE
    Participant

    Its because capital gains is part of separately stated items; thus it should be treated differently from ordinary income.

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    #3303757
    monikernc
    Participant

    Because a partner treats income as characterized on the k-1. If the k-1 says it is capital gain then that is how the partner treats it on their individual return. Can you think of any instance where cap gain is treated as ordinary income? Reread the question and see if that helps.

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