On December 20, 2015, Jim Cash, one of two partners, contributed inventory with

Question

On December 20, 2015, Jim Cash, one of two partners, contributed inventory with a basis to him of $15,000 and a fair market value of $10,000 to the partnership of which he was a member. His capital account was credited with $10,000. The property, which was a capital asset in the hands of the partnership, was sold on December 1, 2016 for $12,000. As a result of this sale, what is amount and the character of any gain or loss allocable to Jim?

a. $1,000 capital gain

b. $1,500 ordinary loss

c. $2,000 capitall gain

d. $3,000 ordinary loss

e. None of the above

Explanation / Answer

correct option is =$3,000 ordinary loss

Explanation:

Total ordinary loss=inventory basis-sales price

=$15,000-$12,000

=$3,000 ordinary loss

This all losses will be allocable to Jim as it is precontribution loss. It is ordinary loss as it is sold before 5 years time period.

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