Katherine invested $80,000 this year to purchase a 30% interest in the KLM Partnership. The partnership reported $200,000 of net income from operations, a $2,000 short-term capital loss, and a $10,000 charitable contribution. In addition, the partnership distributed $20,000 to Katherine and $10,000 each to partners Lauren and Missy. If the partnership has no beginning or ending liabilities, what is Katherine’s basis in her partnership interest at the end of the year?

Question

What will be an ideal response?

Answer 1

$116,400. Katherine's initial basis of $80,000 is increased by her 30% share of partnership income from operations ($60,000). Her basis is decreased by her 30% share of the partnership's charitable contribution ($3,000) and the short-term capital loss ($600). It is also decreased by the $20,000 distribution she received. The distributions to Lauren and Missy do not affect Katherine's basis. Katherine's ending basis, then, is $116,400 ($80,000 + $60,000 - $600 - $3,000 - $20,000).