Question

In a limited partnership, when cash is distributed from an investor's partnership basis, how is the new basis of capital account calculated? Group of answer choices The cash distribution is added to the investor's capital gain The cash distribution is subtracted from the investor's capital gain The cash distribution is added to the investor's partnership basis The cash distribution is subtracted from the investor's partnership basis

Answer 1

Answer:

The cash distribution is subtracted from the investor's partnership basis

Explanation:

When partners wish to distribute more money than their earnings, then the amount of money distributed above the earnings' distribution must be subtracted from the partners' capital accounts.

For example, 3 partners each invested $50,000 in a partnership. The current year's profit is only $10,000, but the partners wish to distribute $25,000. The difference between the distribution and the profit = $15,000 which will be subtracted from the capital account (= $150,000 - $15,000 = $135,000).