Tom recognizes $15,000 of U.S. source income from the partnership's sale of U.S. property.

Tom and Gerry own a partnership that sells real estate located in the United States. A little side note before we dive in: the tax rules around partnerships can feel like a tangle, but at heart they’re about one simple idea—income from a U.S. property sale is U.S. source income, and it gets shared with the partners according to the partnership agreement or ownership stakes. In this scenario, the key takeaway is that Tom would recognize $15,000 of U.S. source income.

Let me explain what “U.S. source income” means in plain terms

When a piece of property sits in the United States and is sold, the gain from that sale is generally treated as U.S. source income. That matters because it determines where the income is taxed and how it makes its way onto each partner’s tax return. It’s not about who physically paid the tax man first; it’s about where the money comes from and how the partnership decides to allocate it.

Think of a partnership as a shared pizza. The total slice of income from the sale is cut according to the partners’ slices—each person gets a share that reflects their ownership or the allocation agreed in the partnership details. So if Tom and Gerry own the partnership in a way that assigns Tom a 15,000 portion of the gain, then Tom reports that exact amount on his return, even though the total gain from the sale might be larger or smaller. The math isn’t magic; it’s a matter of the agreement—and the facts of the sale—driving how the gain is split.

Why the answer isn’t simply “everyone gets the same” or “nobody gets anything”

A lot of the confusion around these questions comes from the assumption that gains must be split evenly or that one partner’s share automatically mirrors another’s. In reality, the allocation depends on two things: the ownership percentages and any special allocations the partnership has written into its operating agreement or partnership consent. If the partnership agreement designates Tom’s share as 15,000 of the gain, that’s what Tom reports, regardless of Gerry’s hypothetical share. The other partner’s portion follows the same logic, but it isn’t fixed unless the agreement spells it out.

In many cases, people want to know whether Gerry would recognize $30,000 in U.S. source income. The provided scenario doesn’t specify Gerry’s exact allocation, so the statement that Gerry would recognize $30,000 isn’t something we can confirm from the facts given. The correct conclusion, given the stated allocation for Tom, is that Tom recognizes $15,000. The remaining amount—and who reports it—depends on the partnership’s allocation rules.

A quick look at how this shows up on tax forms

Here’s where the rubber meets the road for real-world filing. Partnerships don’t pay income tax themselves. Instead, they issue Schedule K-1 (Form 1065) to each partner. That K-1 shows each partner’s share of ordinary income, capital gains, depreciation recapture, and any deductions or credits tied to the sale. For Tom, the Schedule K-1 would indicate the $15,000 U.S. source income he must report on his individual return. Gerry’s line would show whatever share the agreement assigns to him, if any, in that same calendar year.

Sounds technical? It isn’t, once you keep the ideas in place:

• U.S. source income arises from property located in the U.S.

• A partnership passes income through to partners based on ownership or an allocation plan

• Form 1065 and Schedule K-1 are the places to see each partner’s piece of the pie

A few real-world nuances that matter (and why this topic is worth understanding)

• The character of the gain matters. Is it a capital gain from selling a physical property, or is there depreciation recapture to consider? Typically, real estate gains can carry different tax flavors (capital gains versus ordinary income in some scenarios), and the character affects the rate you pay.

• Basis matters, too. Each partner’s basis in the partnership interest influences gain recognition. If Tom put in more capital or contributed services in a way that shifts his share, that can shift the numbers, even if the sale price looks the same at first glance.

• The timing question is real. Some allocations are set to take effect at different times or under certain conditions. A well-drafted partnership agreement reduces surprises at tax time, but it also means you have to keep a careful eye on who earned what, when.

• Foreign twists exist as well. If a partner were a nonresident alien or a foreign entity, FIRPTA withholding considerations could complicate things. For U.S. residents and citizens, those complications usually don’t derail the basic idea, but it’s good to know the landscape can shift with the ownership mix.

A practical way to think about Tom’s $15,000

Let’s anchor this with a simple mental model. Suppose the partnership sold a U.S. property and the total gain for the year was $50,000. If the partnership agreement or ownership arrangement assigns Tom 30% of the gain, Tom’s share would be $15,000, which lines up with the answer you’re looking at. Gerry’s share, then, would be the remaining $35,000, unless there are other special allocations that change the split. The exact numbers aren’t in the narrative beyond Tom’s $15,000, but the principle holds: each partner reports their own slice on their return.

If you’re studying this in the context of a Level 1 tax course, you’ll want to connect the dots between the concept of U.S. source income and the practical steps you’d take in a filing scenario:

• Identify the source of the income. Real property located in the U.S. = U.S. source income.

• Confirm the allocation. What does the partnership agreement say about each partner’s share?

• Check the paperwork. Schedule K-1 (Form 1065) will spell out each partner’s numbers.

• Consider the tax character. Are we talking capital gains, depreciation recapture, or other components that have separate tax treatments?

• Plan for the future. If the property was held through the partnership for a while, the basis and prior depreciation will affect the outcome.

A friendly nudge about the broader landscape

Tax rules around partnerships can feel like they’re stitched together from a few different fabrics. Yet the thread that runs through them is practical: who earns what, where the income comes from, and how that income is reported. When you look at it that way, the concept becomes surprisingly approachable. It’s not about memorizing every obscure rule; it’s about tracing the income from the sale to the partners who bear the tax consequences.

A few quick, reader-friendly takeaways

• U.S. source income is tied to property in the United States. A sale of U.S. property by a partnership typically results in U.S. source income that passed through to the partners.

• The exact share reported by each partner depends on the partnership’s allocation rules or ownership percentages. In this scenario, Tom’s share is $15,000.

• Partners report their shares on their own tax returns, using Schedule K-1 as the road map.

• The nature of the gain (capital, ordinary, or recapture) and the partners’ basis influence the tax impact as much as the allocation itself.

A final thought to carry with you

Navigating partnership gains isn’t about hunting for a single right answer in a multiple-choice maze. It’s about understanding the source of the income, how the partnership distributes it, and how each partner’s tax picture gets painted as a result. When you can trace that flow—sale to source to allocation to reported amount—the questions start to feel less like traps and more like logical puzzles you can solve with confidence.

If you’re curious to see how these ideas show up in real life, you can look at case studies or sample K-1s from reputable tax resources. They’ll mirror the kinds of numbers you’re likely to encounter and help you build the mental models that make this stuff click. In the end, what matters most is clarity: knowing the income came from a U.S. property, recognizing the correct share for each partner, and understanding where that share lands on the personal tax return.

Bottom line

In the scenario you asked about, Tom would recognize $15,000 of U.S. source income from the sale. The rest depends on how the partnership allocated the gain, and Gerry’s figure isn’t specified here. The underlying principle is straightforward: U.S. property sales by a partnership generate U.S. source income that passes through to the partners in accordance with the agreement, with the tax return reflecting each partner’s chosen share.

If you’re exploring tax concepts in a structured learning track, consider how these ideas connect to the bigger picture—basis, depreciation, and the mechanics of Schedule K-1. They’re the building blocks that keep your understanding solid, even when the numbers twist and turn. And yes, it’s perfectly reasonable to pause and check the math—it’s what smart tax thinkers do, with a cup of coffee in hand and a notebook ready for those little aha moments.