Stewart is a 30 percent general partner in STP Partnership.His basis in his partnership interest at the beginning of the year was $40,000.During the year, the partnership reported a $30,000 loss and paid off a $120,000 recourse debt.What is Stewart's year-end basis in his partnership interest?
A)0
B)$4,000
C)$31,000
D)$67,000

Question

Quizplus · Accepted Answer

Stewart's initial basis is $40,000. His share of the loss is 30% of $30,000, which is $9,000, reducing his basis to $31,000. The repayment of the $120,000 recourse debt does not affect his basis because partners' bases do not change with the repayment of recourse debts unless they contribute additional capital or are relieved of personal liability. However, since his share of the partnership's loss reduces his basis below zero, his ending basis is $0 because a partner's basis cannot go below zero.

Stewart Is a 30 Percent General Partner in STP Partnership