ExpertHard1 markMultiple Choice
CPA · Question 67 · Area V: Entity Taxation
Which of the following is a 'Section 751 asset' (Hot Asset) that triggers ordinary income recognition upon the sale of a partnership interest?
Which of the following is a 'Section 751 asset' (Hot Asset) that triggers ordinary income recognition upon the sale of a partnership interest?
Answer options:
A.
Capital assets held for less than one year.
B.
Section 1231 assets.
C.
Unrealized receivables and inventory items.
D.
Cash.
How to approach this question
Hot Assets = Unrealized Receivables + Inventory. These create Ordinary Income, not Capital Gain, when you sell your partnership interest.
Full Answer
C.Unrealized receivables and inventory items.✓ Correct
C
Section 751 assets ('Hot Assets') include unrealized receivables (cash basis A/R) and inventory items. When a partnership interest is sold, the portion of the gain attributable to these assets is treated as ordinary income.
Common mistakes
Thinking all gain on sale of partnership interest is capital.
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