Samantha and Ashley form the MAS General Partnership.Samantha contributed $20,000 cash in exchange for her 50 percent partnership interest.During the first year of partnership operations, the partnership reported net taxable income of $10,000, Samantha withdrew $8,000 cash from the partnership, and the partnership took out an $18,000 loan on the last day of the year.Samantha's adjusted basis for her partnership interest at year end is:
A)$38,000
B)$30,000
C)$26,000
D)$17,000

Question

Quizplus · Accepted Answer

Samantha's adjusted basis starts with her initial contribution of $20,000. Her share of the net taxable income ($10,000) increases her basis by $5,000 (50% of $10,000). The withdrawal of $8,000 cash decreases her basis. The partnership's loan does not affect her basis because partners' bases are not adjusted for the partnership's liabilities unless they are personally guaranteeing the loan. Therefore, her adjusted basis is $20,000 + $5,000 - $8,000 = $17,000. However, the correct calculation should be $20,000 (initial contribution) + $5,000 (50% of net income) - $8,000 (withdrawal) = $17,000, indicating a mistake in the explanation. The correct answer should be D, based on the calculation provided.

Samantha and Ashley Form the MAS General Partnership