Partner Spence had the following items reported on a partnership Schedule K-1: $\begin{array}{lr}\text { Ordinary income }&\$57,000\
\text { Interest income } & 4,900 \
\text { Dividend income } & 5,300 \
\text { Guaranteed payment } & 15,000 \
\text { Section 179 expense } & 16,000 \
\text { Cash distribution } & 20,000
\end{array}$ Spence had a basis in his partnership interest of $23,000 at the beginning of the year.What is Spence's basis in his partnership interest at the end of the year?

Question

Quizplus · Accepted Answer

To calculate Spence's basis in his partnership interest at the end of the year, we start with his beginning basis of $23,000. We then add the ordinary income ($57,000), interest income ($4,900), dividend income ($5,300), and guaranteed payment ($15,000), which all increase his basis. We also add the Section 179 expense ($16,000) because it is a deductible expense that does not reduce his cash or basis. The cash distribution ($20,000) is subtracted from the basis. Therefore, the calculation is $23,000 + $57,000 + $4,900 + $5,300 + $15,000 + $16,000 - $20,000 = $101,200 - $20,000 = $81,200. However, this answer is not listed, indicating a mistake in my explanation. The correct calculation should consider only the items that affect the partner's basis: Starting basis: $23,000+ Ordinary income: $57,000+ Interest income: $4,900+ Dividend income: $5,300+ Guaranteed payment: $15,000+ Section 179 expense: $16,000- Cash distribution: $20,000Correct calculation: $23,000 + $57,000 + $4,900 + $5,300 + $15,000 + $16,000 - $20,000 = $101,200 - $20,000 = $81,200. Given the options, it appears there was an error in my recalculation or a misunderstanding of the question's details. The correct approach to calculate the end-of-year basis involves adjusting the beginning basis by the income items, guaranteed payment, Section 179 expense, and subtracting the cash distribution. If any of my assumptions or calculations were incorrect, it would lead to a different answer. Without the correct option listed, it's crucial to re-evaluate the calculation steps or consider any potential misunderstandings about how specific items affect a partner's basis in a partnership.

Partner Spence Had the Following Items Reported on a Partnership