Jerry, a partner with 30% capital and profit 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 $50,000. His current year Schedule K-1 reported an ordinary loss of $15,000, long-term capital gain of $3,000, qualified dividends of $2,000, $500 of non-deductible expenses, a $10,000 cash contribution, and a reduction of $4,000 in his share of partnership debt. What is Jerry's adjusted basis in his partnership interest at the end of the year?
A) $35,000.
B) $40,000.
C) $45,500.
D) $49,500.

Question

Quizplus · Accepted Answer

Jerry's initial tax basis is increased by his cash contribution and share of separately stated items (long-term capital gain and qualified dividends). His basis is then reduced by his share of the reduction in partnership debt, non-deductible expenses, and ordinary loss ($50,000 + $10,000 + $3,000 + $2,000 − $4,000 − $500 − $15,000 = $45,500).

Jerry, a Partner with 30% Capital and Profit Interest, Received