Question

Hilary had an outside basis in LTL General Partnership of $15,000 at the beginning of the year. LTL reported the following items on Hilary's K-1 for the year: ordinary business income of $10,000, a $15,000 reduction in Hilary's share of partnership debt, a cash distribution of $25,000, and tax-exempt income of $8,000. What is Hilary's adjusted basis at the end of the year

Answer 1

Answer:

$7,000 Gain and $0 Adjusted basis

Explanation:

Hilary adjusted basis is calculation below.

Hilary outside basis in LTL General Partnership of $15,000

Add:Ordinary business income $10,000

Tax-exempt income $8,000

Less: reduction in Hilary's share of partnership debt $15,000

Cash distribution of $25,000

Adjusted basis loss $7,000

Hence;

= ( $ 7,000 ) + $ 7,000 ( gain )

= $ 0

Therefore Hilary's adjusted basis at the end of the year will be adjusted basis of $ 0 because

Hilary's basis increased by her share of ordinary business income and tax exempt income and then decreased by her actual cash distribution as well as her deemed cash distribution from the reduction in her share of debt which makes her actual and deemed cash distribution exceed her basis which is Hilary must report $ 7,000 of capital gain leaving her with a $0 basis in her partnership interest.

Answer 2

Answer:

$0

Explanation:

$15,000 (Hillary's partnership basis at the beginning of the year) + $10,000 (ordinary business income) + $8,000 (tax exempt income) - $15,000 (reduction in share of partnership's debt) - $25,000 (cash distribution) = -$7,000. Since the basis cannot be negative, it is $0.

Also, since Hillary's adjusted basis resulted in a negative value, she must report a capital gain of $7,000. That way her basis = -$7,000 + $7,000 = $0