Stan had a basis in his partnership interest at the beginning of last year of $30,000. There was no change in partnership liabilities during the year. His share of the partnership's ordinary loss last year was $40,000 and the partnership had no separately stated items. This year, Stan has a distributive share of ordinary income of $30,000. The taxable income from the partnership reported on Stan's personal income tax return this year (ignoring the at-risk and passive activity loss limitations)is
A)$10,000 ordinary loss.
B)$20,000 ordinary income.
C)$30,000 ordinary income.
D)$40,000 ordinary income.

Question

Quizplus · Accepted Answer

Stan's basis in his partnership interest at the beginning of last year was $30,000. He had a share of the partnership's ordinary loss of $40,000. This means that his ending basis at the end of last year was a negative $10,000 ($30,000 - $40,000 = -$10,000).

This year, Stan has a distributive share of ordinary income of $30,000. His beginning basis for this year is -$10,000, and he has now increased it by $30,000. This means that his ending basis for this year is $20,000 ($-10,000 + $30,000 = $20,000).

Since Stan's distributive share of ordinary income is less than his ending basis of $20,000, his taxable income from the partnership reported on his personal income tax return this year is $20,000 of ordinary income. Therefore, the answer is B.

Stan Had a Basis in His Partnership Interest at the Beginning