[Chloe]

NINJA Question –

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?

[Chloe]

From the most recent 2021 RQ,

A C corporation incurred $438,000 capital loss in year 4 and has the following tax information. What amount of capital loss is available for
carryover to future tax years?
Y1 Y2 Y3 Y4
Capital gain(loss) 0 $21,000 $11,000 ($438,000)
Taxable gain(loss) 25000 17000 31000 750,000

—> The answer is $410,000. Can someone please explain why 410,000 is a carryforward capital loss?

[CPAHOPE]

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

[monikernc]

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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[Author]

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