Sharon and Sara are equal partners in the S&S Partnership.On January 1 of the current year,each partner's adjusted basis in S&S was $50,000 (including each partner's $15,000 share of the partnership's $30,000 of liabilities).During the current year,S&S repaid the beginning liabilities and borrowed $20,000 for which Sharon and Sara are equally liable.In the current year ended December 31,S&S also sustained a net operating loss of $25,000 and earned $5,000 of interest and qualified dividend income from investments.If liabilities are shared equally by the partners,on January 1 of the next year each partner's basis in her interest in S&S is:
A)$35,000.
B)$40,000.
C)$45,000.
D)$47,500.
E)$50,000.

Question

Quizplus · Accepted Answer

Each partner's initial basis in the partnership is $50,000.The basis is reduced by the $15,000 of repaid debt and increased by each partner's $10,000 share of new liabilities.Each partner's basis is then reduced by the $12,500 share of the net operating loss and increased by the $2,500 share of qualified dividends.

Sharon and Sara Are Equal Partners in the S&S Partnership