Mutt and Jeff are general partners in M&J Partnership and share profits and losses equally. Partnership operations for the current tax year were: $\begin{array}{llr}
\text { ordinary business income } &\$100,000\
\text {Long-term capital gain } &10,000\
\text { Total distributions to partners } &60,000
\end{array}$

Mutt's tax basis in his partnership interest at the beginning of the current year was $12,000. What is his basis at the beginning of next year?

Question

Mutt and Jeff are general partners in M&J Partnership and share profits and losses equally. Partnership operations for the current tax year were: $\begin{array}{llr}
  \text { ordinary business income } &\$100,000\
 \text {Long-term capital gain  } &10,000\
 \text { Total distributions to partners } &60,000
\end{array}$

Mutt's tax basis in his partnership interest at the beginning of the current year was $12,000. What is his basis at the beginning of next year?

Quizplus · Accepted Answer

Mutt's beginning basis is $12,000. His share of the ordinary business income ($100,000 / 2 = $50,000) and his share of the long-term capital gain ($10,000 / 2 = $5,000) increase his basis. The total distributions to partners ($60,000) are divided equally, so Mutt's distribution is $30,000, which decreases his basis. Therefore, his basis at the beginning of next year is $12,000 + $50,000 + $5,000 - $30,000 = $37,000.

Mutt and Jeff Are General Partners in M&J Partnership and Share