Styling Shoes, LLC, filed its 20X8 Form 1065 on March 15, 20X9. Styling had three members with the following ownership interests and tax bases at the beginning of 20X8: (1)Jane, a member with a 25 percent profits and capital interest and a $8,000 outside basis, (2)Joe, a member with a 45 percent profits and capital interest and a $13,000 outside basis, and (3)Jack, a member with a 30 percent profits and capital interest and a $5,000 outside basis. The following items were reported on Styling's Schedule K for the year: ordinary income of $106,000, Section 1231 gain of $18,000, charitable contributions of $28,000, and tax-exempt income of $6,000. In addition, Styling received an additional bank loan of $15,000 during 20X8. What is Jane's tax basis after adjustment for her share of these items?
A)$33,500
B)$37,250
C)$40,100
D)$65,650

Question

Quizplus · Accepted Answer

To calculate Jane's tax basis, we first need to determine her share of the partnership's items:
- Share of ordinary income: 25% x $106,000 = $26,500
- Share of Section 1231 gain: 25% x $18,000 = $4,500
- Share of charitable contributions: 25% x $28,000 = $7,000
- Share of tax-exempt income: 25% x $6,000 = $1,500
- Share of additional bank loan: 25% x $15,000 = $3,750

Next, we need to adjust Jane's outside basis by adding her share of income and subtracting her share of deductions and distributions:
- Beginning outside basis: $8,000
- Share of ordinary income: +$26,500
- Share of Section 1231 gain: +$4,500
- Share of tax-exempt income: +$1,500
- Jane's share of additional loan: +$3,750
- Share of charitable contributions: -$7,000
- Total outside basis: $37,250

Therefore, the correct choice is B.

Styling Shoes, LLC, Filed Its 20X8 Form 1065 on March