Binita contributed property with a basis of $40,000 and a value of $50,000 to the BE Partnership in exchange for a 20% interest in partnership capital and profits.During the first year of partnership operations,BE had net taxable income of $30,000 and tax-exempt interest income of $10,000.The partnership distributed $10,000 cash to Binita.Binita's adjusted basis (outside basis) for her partnership interest at year-end is:
A)$36,000.
B)$38,000.
C)$60,000.
D)$70,000.

Question

Quizplus · Accepted Answer

Binita's initial basis in her 20% partnership interest is $8,000 (20% of the $40,000 basis in the property she contributed).

Her share of taxable income is $6,000 ($30,000 x 20%).

Her share of tax-exempt interest income is $2,000 ($10,000 x 20%).

The partnership distributed $10,000 cash to Binita, which reduces her basis by $2,000 ($10,000 x 20%).

Therefore, her adjusted basis at year-end is $38,000 ($8,000 basis in partnership interest + $6,000 share of taxable income + $2,000 share of tax-exempt interest income - $2,000 cash distribution).

Binita Contributed Property with a Basis of $40,000 and a Value