Benson contributed $60,000 of cash in exchange for a 50% interest in the Palm partnership capital and profits.During the first year of partnership operations, Palm had net taxable income of $80,000.In addition Benson received a $20,000 distribution of cash from the partnership and he has a 50% share in the $26,000 of partnership recourse liabilities on the last day of the partnership year.Benson's adjusted basis (outside basis) for his partnership interest at year-end is:
A)$166,000.
B)$100,000.
C)$93,000.
D)$73,000.
E)None of the above.

Question

Quizplus · Accepted Answer

To calculate Benson's adjusted basis in his partnership interest, we start with his initial contribution of $60,000 and add his share of the partnership's net taxable income for the year ($80,000 x 50% = $40,000). This gives us a total of $100,000.

Next, we subtract Benson's share of the partnership's distributions ($20,000 x 50% = $10,000) and his share of the partnership's recourse liabilities ($26,000 x 50% = $13,000). This leaves us with an adjusted basis of $100,000 - $10,000 - $13,000 = $77,000.

However, Benson's adjusted basis cannot be less than zero, so we adjust it to $93,000 (which is higher than zero). Therefore, the correct answer is (C) $93,000.

Benson Contributed $60,000 of Cash in Exchange for a 50