Tim, a real estate investor, Ken, a dealer in securities, and Hardware, Inc., a retail lumber store form a partnership called HKT, LP. HKT is in the home building business. Tim recently purchased his interest in HKT while the other partners purchased their interest several years ago. During X3, HKT reports a $12,000 gain from the sale of a stock in a wholesale lumber company it purchased in X1 for investment purposes. Which of the following statements best represents how their portion of the gain should be reported to the partner?

Question

Quizplus · Accepted Answer

The character of all separately-stated items is determined at the partnership level. Thus, the fact that Tim has held his interest for less than one year (suggesting that the gain from the stock sale might be short-term) and that Ken is a dealer in securities (suggesting that the stock might be treated as inventory by Ken and any resulting gain should be ordinary) doesn't affect the character of the gain from the stock sale which is long-term capital gains since the partnership held the stock for investment purposes for more than one year.

Tim, a Real Estate Investor, Ken, a Dealer in Securities