Kaye owns an 85% interest in the capital and profits of Amor Antiques, a partnership. In Year 2, Kaye sold an oriental lamp to Amor for $6,000. Kaye bought this lamp in Year 1 for her personal use at a cost of $2,000 and had used the lamp continuously in her home until the lamp was sold to Amor. Amor purchased the lamp as inventory for sale to customers in the ordinary course of business. What is Kaye's reportable gain in Year 3 on the sale of the lamp to Amor?

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Business

Nyla Cabrera

18 May, 13:28

Kaye owns an 85% interest in the capital and profits of Amor Antiques, a partnership. In Year 2, Kaye sold an oriental lamp to Amor for $6,000. Kaye bought this lamp in Year 1 for her personal use at a cost of $2,000 and had used the lamp continuously in her home until the lamp was sold to Amor. Amor purchased the lamp as inventory for sale to customers in the ordinary course of business. What is Kaye's reportable gain in Year 3 on the sale of the lamp to Amor?

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Jayson Carpenter · Answer 1

4000$ ordinary income

Explanation:

If more than 50% of the capital or profits interests is owned, directly or indirectly, by the partner, then the gain upon the sale or exchange of property between them shall be considered as ordinary income. Kaye owned 85% of the capital and profits interest of the partnership, so her $4,000 ($6,000 - $2,000) gain is characterized as ordinary income.