Question

Gray is a 50% partner in Fabco Partnership. Gray's tax basis in Fabco on January 1, year 4, was $5,000. Fabco made no distributions to the partners during year 4 and recorded the following: Ordinary income $20,000 Tax-exempt income 8,000 Portfolio income 4,000 What is Gray's tax basis in Fabco on December 31, year 4?

Answer 1

Answer:

$21000

Explanation:

To determine Gray’s tax basis  for a 50% interest in the Fabco Partnership, The interest is increased by the partner’s  distributive share of all partnership items of income and decreased by the partner’s distributive share of all loss and  deduction items.

Gray’s beginning basis = $5,000  

Gray’s 50% distributive share of ordinary  income = 50% × $20000 = $10000

Gray’s 50% tax-exempt income= 50% × $8000 = $4,000 and  

portfolio income = 50% × $4000  = $2,000

Therefore, the ending basis of  Gray’s Fabco partnership interest = $5000 + $10000 + $4000 + $2000 = $21000