Hilary had an outside basis in LTL General Partnership of $10,000 at the beginning of the year. LTL reported the following items on Hilary's K-1 for the year: ordinary business income of $5,000, a $10,000 reduction in Hilary's share of partnership debt, a cash distribution of $20,000, and tax-exempt income of $3,000. What is Hilary's adjusted basis at the end of the year?
A)($12,000)
B)($9,000)
C)$0
D)$15,000
E)$18,000

Question

Quizplus · Accepted Answer

Hilary's adjusted basis calculation: Starting basis of $10,000 + $5,000 ordinary business income + $3,000 tax-exempt income - $10,000 reduction in share of partnership debt - $20,000 cash distribution = $0. The basis cannot go below zero, so the correct answer is $0.

Hilary Had an Outside Basis in LTL General Partnership of $10,000