George’s principle source of income is from real estate. He is a dealer and alwa

Question

George’s principle source of income is from real estate. He is a dealer and always reports his gain and losses as ordinary and not capital. Seven years ago Jorge and his friend Manuel formed a partnership and acquired a single 1000-acre tract of land, Whiteacre. No improvements had been made to Whiteacre and had been the partnership's only asset for the past 7 years.This year Whiteacre was sold for $1,000,000 gain. Jorge’s share of the gain is $500,000 which he receives on his K-1 from the partnership so he can report in his personal tax return. George is in the 35% marginal tax bracket. Would the gain be taxed as ordinary income or capital gain and at what rate?

Explanation / Answer

The nature of income of partnership is the nature of income in the hands of partner. Thus $ 1000000 gain being ordinary income for partnership would also be taxable as such in hands of partner George.

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