Henry has a 30% interest in the HMS Partnership's capital, profits, and losses computed after taking into account his guaranteed payment of $40,000. In the current year, HMS reports ordinary income of $30,000 and capital gains of $60,000 before taking into account Henry's guaranteed payment. What is the amount and character of all income or loss that Henry must report as a result of partnership activities?
A)$40,000 guaranteed payment (ordinary income), $3,000 ordinary loss, $18,000 capital gain
B)$40,000 guaranteed payment (ordinary income), $15,000 capital gain
C)$40,000 guaranteed payment (ordinary income), $9,000 ordinary income, $6,000 capital gain
D)$13,000 guaranteed payment (ordinary income), $6,001 ordinary income, $38,820 capital gain

Question

Quizplus · Accepted Answer

Henry's guaranteed payment is ordinary income. His share of the partnership's ordinary income is 30% of $30,000, or $9,000. His share of the partnership's capital gains is 30% of $60,000, or $18,000. Therefore, Henry must report $40,000 of guaranteed payment (ordinary income), $9,000 of ordinary income, and $18,000 of capital gain.

Henry Has a 30% Interest in the HMS Partnership's Capital