Marianne is a 50% partner in the BAM Partnership.At the beginning of the tax year,Marianne's basis in the partnership interest was $200,000,including her share of partnership liabilities.During the current year,BAM reported an ordinary loss of $100,000.In addition,BAM distributed $10,000 to Marianne and paid partner Barry a $20,000 consulting fee (neither of these amounts was deducted in determining the $100,000 loss from operations).At the end of the year,Marianne's share of partnership liabilities decreased by $30,000.Assuming loss limitation rules do not apply,Marianne's basis in the partnership interest at the end of the year is:
A)$90,000.
B)$95,000.
C)$100,000.
D)$135,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Marianne's basis at the beginning of the year was $200,000. She had a 50% partnership interest, so her share was $100,000. During the year, the partnership reported a loss of $100,000, which Marianne is entitled to deduct. Her basis is now $100,000.

In addition to the loss, Marianne received a distribution of $10,000. Since this is a non-taxable return of capital, it reduces her basis. Her basis is now $90,000.

Finally, Marianne's share of partnership liabilities decreased by $30,000. This means that the partnership paid off $30,000 of the outstanding debt. Since Marianne is responsible for 50% of the partnership's debts, her share is $15,000. This payment increases her basis to $105,000.

Adding up the changes to Marianne's basis, we get:

Beginning basis: $200,000
Loss deduction: -$100,000
Distribution: -$10,000
Liability decrease: +$15,000
Ending basis: $105,000

Therefore, the answer is C) $100,000.

Marianne Is a 50% Partner in the BAM Partnership