At the beginning of the year, Ryan's capital account balance in the RUS Partnership (in which he owned a 40% interest) was $200,000. During the year, Ryan contributed cash ($40,000) and property (basis = $20,000, fair market value = $30,000). RUS reported ordinary income of $100,000 and tax-exempt income of $6,000. At the end of the year, the partnership distributed $6,000 of cash to Ryan. On the Schedule K-1, the partnership shows that Ryan had a $50,000 share of nonrecourse LLC debt at the end of the year. Using the tax basis method, how much is Ryan's ending capital account balance?
A) $294,000.
B) $296,400.
C) $306,400.
D) $344,000.
E) $346,400.

Question

Quizplus · Accepted Answer

Ryan's ending capital account balance is calculated as follows: Starting balance $200,000 + cash contribution $40,000 + property contribution $20,000 + share of ordinary income $40,000 (40% of $100,000) + share of tax-exempt income $2,400 (40% of $6,000) - cash distribution $6,000 = $296,400. Nonrecourse debt does not affect the capital account balance under the tax basis method.

At the Beginning of the Year, Ryan's Capital Account Balance