Nicholas, a 1/3 partner with a basis in the interest of $80,000 at the beginning of the year, received a guaranteed payment in the current year of $50,000.Partnership income before consideration of the guaranteed payment was $20,000.Nicholas must report a $10,000 ordinary loss from partnership operations, and the $50,000 guaranteed payment as ordinary income.

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Nicholas's distributive share of partnership income is $6,666.67 (1/3 of $20,000). His guaranteed payment of $50,000 is treated as ordinary income. Therefore, his total income from the partnership is $56,666.67. Since his basis in the partnership is $80,000, he has an ordinary loss of $23,333.33 ($80,000 - $56,666.67).

Nicholas, a 1/3 Partner with a Basis in the Interest