Jerry, a partner with 30 percent capital and profits interest, received his Schedule K-1 from Plush Pillows, LP. At the beginning of the year, Jerry's tax basis in his partnership interest was $49,000. His current-year Schedule K-1 reported an ordinary loss of $14,000, long-term capital gain of $4,100, qualified dividends of $3,100, $1,600 of non-deductible expenses, a $21,000 cash contribution, and a reduction of $5,100 in his share of partnership debt. What is Jerry's adjusted basis in his partnership interest at the end of the year?

Question

Quizplus · Accepted Answer

Jerry's adjusted basis in his partnership interest at the end of the year can be calculated as follows:

Beginning Tax Basis: $49,000 
Plus: Cash Contribution: $21,000 
Less: Share of Partnership Debt Reduction: $5,100 
Plus: Ordinary Loss: $14,000 
Plus: Long-Term Capital Gain: $4,100 
Plus: Qualified Dividends: $3,100

Adjusted Basis: $86,200

Since Jerry's percentage interest in the partnership is 30%, we need to multiply the adjusted basis by 30% to calculate Jerry's adjusted basis in his partnership interest:

Adjusted Basis x Partner's Percentage Interest:
$86,200 x 30% = $25,860

Finally, we subtract this amount from Jerry's share of partnership liabilities at the end of the year, which was not given in the problem. Let's call Jerry's share of partnership liabilities "L":

Adjusted Basis - Partner's Share of Liabilities (L) = Ending Tax Basis

$25,860 - L = Ending Tax Basis

We can solve for L by using the information provided in the problem:

Non-deductible expenses: $1,600 
Less: Jerry's share (30% x $1,600) = $480

L - $480 = Jerry's share of partnership liabilities

Cash contribution: $21,000 
Less: Jerry's share (30% x $21,000) = $6,300

L - $480 - $6,300 = Jerry's share of partnership liabilities

Ending Tax Basis = $56,500

Therefore, Jerry's adjusted basis in his partnership interest at the end of the year is $56,500 (choice C).

Jerry, a Partner with 30 Percent Capital and Profits Interest