William and Irene each contribute $20,000 cash to the WI Partnership on January 1 of last year.William and Irene share profits and losses equally.Last year,the partnership reported tax-exempt interest income of $4,000.This year,each partner receives $1,000 of the tax-exempt interest income in a cash distribution.There are no partnership liabilities and no other income,loss,contributions,or distributions during both years.William's basis in the partnership interest following these transactions is

Question

Quizplus · Accepted Answer

The initial basis for each partner's interest is $20,000. Since there were no other contributions or distributions, each partner still has a basis of $20,000 at the end of year 1.

In year 2, each partner receives $1,000 of tax-exempt interest income as a cash distribution. Since the income is tax-exempt, it does not affect the partners' basis in the partnership.

Therefore, William's total basis in the partnership interest at the end of year 2 is $20,000 (initial basis) + $1,000 (share of tax-exempt interest received) = $21,000.

William and Irene Each Contribute $20,000 Cash to the WI