Michelle and Jacob formed the MJ Partnership.Michelle contributed $20,000 of cash in exchange for her 50% interest in the partnership capital and profits.During the first year of partnership operations, the following events occurred: the partnership had a net taxable income of $10,000; Michelle received a distribution of $8,000 cash from the partnership; and Michelle had a 50% share in the partnership's $16,000 of recourse liabilities on the last day of the partnership year.Michelle's adjusted basis for her partnership interest at year end is:

Question

Quizplus · Accepted Answer

Michelle's initial contribution of $20,000 gives her a starting adjusted basis of $20,000. She also received a distribution of $8,000, which reduces her adjusted basis to $12,000. Her share of the partnership's liabilities increases her adjusted basis by $8,000 (50% of $16,000). Finally, her share of the partnership's net income increases her adjusted basis by $5,000 (50% of $10,000). Thus, her adjusted basis at year end is $25,000 ($20,000 + $8,000 - $5,000). Therefore, choice C is correct.

Michelle and Jacob Formed the MJ Partnership