Rocky and Charlie form RC Partnership as equal partners.Rocky contributes $100,000 into RC while Charlie contributes real estate with a cost and fair market value of $100,000.During the current year,RC earned net income of $600,000.The partnership distributes $200,000 to each partner.The amount that Rocky should report on his individual tax return is
A)$0.
B)$100,000.
C)$200,000.
D)$300,000.

Question

Quizplus · Accepted Answer

As equal partners, Rocky and Charlie split the $600,000 net income equally, resulting in each partner's basis in the partnership increasing to $300,000. The $200,000 distribution received by Rocky reduces his basis to $100,000. However, since his basis is less than his share of partnership debt (which would be $100,000 because Charlie contributed property rather than cash), Rocky is deemed to have received a cash distribution equal to the excess of his share of partnership debt over his basis, which is $0 ($100,000 share of debt - $100,000 basis = $0). Therefore, Rocky has no taxable income from the partnership for the current year.

Rocky and Charlie Form RC Partnership as Equal Partners