Binita contributed property with a basis of $40,000 and a value of $50,000 to the BE Partnership in exchange for a 20% interest in partnership capital and profits.During the first year of partnership operations, BE had net taxable income of $30,000 and tax-exempt interest income of $10,000.The partnership distributed $10,000 cash to Binita.Binita's adjusted basis (outside basis) for her partnership interest at year-end is:
A)$36,000.
B)$38,000.
C)$60,000.
D)$70,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Binita's basis in her partnership interest is determined by her initial contribution of property ($40,000) + any additional contributions made by her - any distributions received by her.

In this case, Binita received a cash distribution of $10,000, which reduces her basis to $30,000. She did not make any additional contributions during the year.

Her share of the partnership's taxable income was $30,000 x 20% = $6,000. Her share of the tax-exempt interest income was also $10,000 x 20% = $2,000.

Therefore, her ending basis is $40,000 + $6,000 + $2,000 - $10,000 = $38,000.

Binita Contributed Property with a Basis of $40,000 and a Value