On December 1, Antonio, a member of a three-person partnership, purchases investment securities from the partnership for their $37,000 FMV. All partners share profits and losses equally. The securities were acquired by the partnership for $25,000 cash in March of the current year. What amount and character of gain will Antonio recognize because of this transaction?
A)$0 gain
B)$4,000 ordinary income
C)$4,000 short-term capital gain
D)$12,000 ordinary income

Question

Quizplus · Accepted Answer

When a partner purchases property from their partnership, it is treated as a sale to a third party. Antonio purchased the securities for their FMV of $37,000, which is $12,000 more than the partnership's basis in the securities ($37,000 - $25,000). This results in a short-term capital gain of $4,000 for each partner ($12,000 ÷ 3 = $4,000). Therefore, the correct answer is (C) $4,000 short-term capital gain.

On December 1, Antonio, a Member of a Three-Person Partnership