Steve's basis in his SAW Partnership interest is $200,000 including all adjustments at the beginning of the tax year, .
His allocable share of partnership items is: ($120,000) of ordinary loss, $6,000 tax-exempt interest income, and a
$14,000 long-term capital gain. In addition, during the year, the LLC distributed $20,000 of cash to Steve. Also during the year, Steve's share of partnership debt increased by $10,000. Steve's ending basis in his LLC interest is $80,000.

Question

Quizplus · Accepted Answer

Steve's beginning basis in his SAW Partnership interest is $200,000. His share of the partnership's ordinary loss would reduce his basis, but only to the extent of his basis before considering any distributions. The tax-exempt interest income of $6,000 and the long-term capital gain of $14,000 would increase his basis. The cash distribution of $20,000 and the increase in his share of partnership debt by $10,000 would also affect his basis. Specifically, his basis would be adjusted as follows: Starting basis of $200,000 - $120,000 (ordinary loss, limited to his basis before the distribution and debt increase) + $6,000 (tax-exempt interest) + $14,000 (capital gain) - $20,000 (cash distribution) + $10,000 (increase in debt) = $90,000. Therefore, Steve's ending basis in his LLC interest would be $90,000, not $80,000.

Steve's Basis in His SAW Partnership Interest Is $200,000 Including