Styling Shoes, LLC, filed its 20X8 Form 1065 on March 15, 20X9. Styling had three members with the following ownership interests and tax bases at the beginning of 20X8: (1) Jane, a member with a 25 percent profits and capital interest and a $5,000 outside basis, (2) Joe, a member with a 45 percent profits and capital interest and a $10,000 outside basis, and (3) Jack, a member with a 30 percent profits and capital interest and a $2,000 outside basis. The following items were reported on Styling's Schedule K for the year: ordinary income of $100,000, Section 1231 gain of $15,000, charitable contributions of $25,000, and tax-exempt income of $3,000. In addition, Styling received an additional bank loan of $12,000 during 20X8. What is Jane's tax basis after adjustment for her share of these items?
A) $28,250.
B) $31,250.
C) $33,500.
D) $57,250.

Question

Quizplus · Accepted Answer

To calculate Jane's tax basis after adjustment for her share of the items reported on Styling's Schedule K, we'll need to take the following steps:

1. Start with Jane's outside basis at the beginning of the year: $5,000
2. Add her share of Styling's ordinary income: $100,000 x 25% = $25,000
3. Add her share of Styling's Section 1231 gain: $15,000 x 25% = $3,750
4. Subtract her share of Styling's charitable contributions: $25,000 x 25% = $6,250
5. Add her share of Styling's tax-exempt income: $3,000 x 25% = $750
6. Add her share of Styling's additional bank loan: $12,000 x 25% = $3,000
7. Jane's adjusted tax basis = $5,000 + $25,000 + $3,750 - $6,250 + $750 + $3,000 = $31,250

Therefore, the correct answer is B.

Styling Shoes, LLC, Filed Its 20X8 Form 1065 on March