[jeff]

Welcome to the Q2 2015 CPA Exam Study Group for REG.

“Death and Taxes” – Individual Tax for the CPA Exam

Posted by Another71 on Monday, November 24, 2014

Free NINJA: https://www.another71.com/cpa-exam-study-plan/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

Honestly, in a question like this, I don't see how we could really tell what the partner's basis is. How do I know how much income from prior years was added to the initial inside basis?

[willpassby2014]

exactly….i was cracking all the partnership mcq and when this came it lowered my confidence.

BEC Passed
FAR Passed
AUD Passed
REG Passed

[Anonymous]

Also, I was researching this before. I think when they sell the interest, they use FMV of hot assets for calculating ordinary income, but when they liquidate they use book value, something like that

[willpassby2014]

That i know. when they liquidate they use partnership basis in Hot assets but when partnership interest is sold we use FMV. i have noted it in my notes

BEC Passed
FAR Passed
AUD Passed
REG Passed

[Anonymous]

Unrealized inventory and A/R are ordinary income when liquidating a partnership interest. The remaining property is allocated a basis equal to partnership basis – FMV of unrealized inventory and A/R – cash received = basis in property. If there is more than one item of property, that remaining basis is allocated based on FMV of the property.

As I understand it, there is never a gain or loss on liquidating distributions or sales from a partnership, unless the cash and hot assets > basis. Please correct me if I'm wrong. Typing it all out and discussing it immensely helps my memory.

[Anonymous]

Edit: Duplicate post. Sorry.

[Anonymous]

I'd have to find that gleim mcq again, I keep forgetting this stuff. But there is this https://www.aicpa.org/publications/taxadviser/2010/august/pages/clinic-story-08.aspx

[Anonymous]

here is interesting one

Mike’s interest in Sun Partnership has an adjusted basis of $150,000. In a complete liquidation of his interest, he received the following:

Adjusted

Fair Market

…………Basis Value

Cash $70,000 $70,000

Building 80,000 90,000

Computer 20,000 10,000

Inventory 30,000 30,000

Assume no depreciation on either the computer or the building. What is Mike’s basis in the building and computer respectively?

Building Computer

A.

$44,445

$5,555

B.

$67,500

$7,500

C.

$45,000

$5,000

D.

$40,000

$10,000

[Anonymous]

Answer (A) is correct.

The basis of properties distributed by a partnership in a liquidating distribution to a partner is the adjusted basis of the partner’s interest in the partnership less any money received in the same distribution. The basis of distributed property is allocated first to inventory items and unrealized receivables up to the amount of the partnership’s adjusted basis in these items, then to other property to the extent of each distributed property’s adjusted basis to the partnership. The remaining basis increase or decrease is allocated depending on whether the adjusted bases of the distributed properties exceed the partner’s remaining basis in the partnership interest or not. Since the partnership’s bases in the distributed properties exceed the partner’s remaining basis in the partnership, a decrease must be allocated among the properties with unrealized depreciation, in proportion to their respective amounts of unrealized depreciation (to the extent of cash property’s depreciation), and then in proportion to the properties’ respective adjusted bases (considering the adjustments already made). In this case, a $40,000 decrease ($50,000 reduced by $10,000 because of the decrease in the computer’s value to fair market value) is allocated based on the properties’ respective adjusted bases as follows:

Building

Computer

Carryover basis

$80,000

$20,000

Allocate decline

(10,000)

$80,000

$10,000

Allocate decrease (8/9 to building

and 1/9 to equipment)

(35,555)

(4,445)

Basis

$44,445

$ 5,555

[CPAfit]

Hey Anna, can you please explain this one to me? I can't wrap it around my head

Tom Lewis, an individual taxpayer, paid interest on a $10,000 home-equity line of credit that was secured by his personal residence. Tom used the proceeds of the $10,000 loan to purchase a sailboat. At the time of the $10,000 loan, Tom's outstanding mortgage on the residence was $78,000, and the fair market value of the residence was $80,000. On how much of the $10,000 loan amount may Tom deduct interest charges for on his 2014 tax return (assuming that he can fully itemize and deduct all such charges)?

A.

$0

Correct B. $2,000

C.

$8,000

D.

$10,000

[Anonymous]

Zubairs, a home equity loan is deductible so long as the outstanding mortgages altogether do not exceed the FMV of the home. Since his home is worth 80 and the first mortgage is 78, only 2 is deductible.

Anna, I had that question in gleim as well. I gave up on understanding it at the time, and now, the best I can do is hot assets and cash first, then lower of basis or fmv for the others. Does that sound right?

[Anonymous]

zubairs,

totally forgot about this thing, thanks for posting! There is a limit on equity debt deducting. It's either 100000 or a difference between house fmv and outstanding mortgage. I think the idea here is that you can only deduct the interest on equity loan that's secured by your home. Out of 80000 only 2000 actually belongs to Lewis

read here, they have an example https://www.irs.gov/publications/p936/ar02.html#en_US_2014_publink1000230008

[Anonymous]

I doubt they are gonna ask us this kind of questions (I hope). According to that aicpa link it's little more complicated than what gleim explains. There is a substantial appreciation… something… we can't be expected to answer it in mcq format. Also, I guess it's only hot assets if it's appreciated. Basically it looks like more liquid goes first and the rest is allocated

[Anonymous]

Other time I would be very interested, but so stressed right now, not sure it's worth digging. Still didn't touch bankruptcy, debtor-creditor and 3 days left. I guess no final review either

[CPAfit]

@Anna thank you very much, I'll try to look into it. Don't stress too much coz I know you'll do great.

[Author]

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