Steve’s basis in his SAW Partnership interest is $200,000 including all adjustments at the beginning of the tax year, . His allocable share of partnership items is: ($120,000) of ordinary loss, $6,000 tax-exempt interest income, and a $14,000 long-term capital gain. In addition, during the year, the LLC distributed $20,000 of cash to Steve. Also during the year, Steve’s share of partnership debt increased by $10,000. Steve’s ending basis in his LLC interest is $80,000.
Answer the following statement true (T) or false (F)
False
Rationale: Steve’s beginning-of-the-year basis is increased by his share of tax-exempt income and long-term capital gain. In addition, his basis is added to by the increase in his share of partnership liabilities. His basis is decreased by the distribution, and finally, using the ordering rules of Exhibit 10.2, by the loss. His basis at the end of the year is $90,000 ($200,000 initial basis + $10,000 increase in share of partnership liabilities + $6,000 tax-exempt interest income + $14,000 long-term capital gain – $20,000 distribution - $120,000 loss).
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