Max is a 10% limited partner in LMN partnership. His adjusted basis in his partnership interest was $50,000 at the beginning of the current year. During the year, the partnership earned $100,000 of ordinary income, incurred a $5,000 capital loss, and paid $1,000 of nondeductible expenses. Max received a distribution of $2,000 from the partnership. Calculate Max's ending adjusted basis in his partnership interest.

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Max's adjusted basis in his partnership interest at the end of the year is calculated as follows:- Starting basis: $50,000- Increase due to his share of ordinary income (10% of $100,000): $10,000- Decrease due to his share of capital loss (10% of $5,000): -$500- Nondeductible expenses do not directly affect the basis.- Distribution received: -$2,000Ending adjusted basis = $50,000 + $10,000 - $500 - $2,000 = $57,500. However, the nondeductible expenses also reduce Max's basis. His share of the nondeductible expenses is 10% of $1,000 = $100.Corrected ending adjusted basis = $57,500 - $100 = $57,400.

Max Is a 10% Limited Partner in LMN Partnership