Meg and Abby Are Equal Partners in the AM Partnership

question 32

Multiple Choice

Meg and Abby are equal partners in the AM Partnership, which earns $40,000 ordinary income, $6,000 long-term capital gain (LTCG) , and $2,000 Sec. 1231 loss during the current year. What is the amount and character of income that must be reported on Abby's tax return for this year's partnership operations?

• A)$20,000 ordinary income, $3,000 LTCG, $1,000 Sec. 1231 loss
• B)$19,000 ordinary income, $3,000 LTCG
• C)$23,000 ordinary income, $1,000 Sec. 1231 loss
• D)$22,000 ordinary income

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Definitions:

Debt Financing

Raising capital through the borrowing of funds to be paid back at a later date, typically through loans or by issuing bonds.

Income Tax Advantage

The financial benefit derived from tax laws that allows for deductions, credits, or exclusions, reducing the overall income tax liability.

Ownership Interest

An individual's or entity's legal share or involvement in an asset, which grants rights and potential financial benefits.

Maturity Value

The amount payable to an investor at the end of a debt instrument's holding period or maturity date, including both the principal and any remaining interest payments.