Micah's beginning capital account on his Schedule K-1 is $60,000. During the year, he is allocated $20,000 of partnership income, $8,000 of nondeductible expenses, and a $12,000 share of tax-exempt income. His Schedule K-1s show allocations of nonrecourse debt of $20,000 (last year) and $30,000 (this year). Micah's ending capital account is $94,000.
Answer the following statement true (T) or false (F)
False
Rationale: Partnership debt is not included in either beginning or ending capital account balances. Micah's beginning capital account is increased by his share of partnership income and tax-exempt income, and it is reduced by his share of nondeductible expenses. His ending capital account is $84,000 ($60,000 beginning balance + $20,000 share of taxable income + $12,000 share of tax-exempt income - $8,000 share of nondeductible expenses). Micah's basis in his partnership interest is $114,000 if debt is the only difference between basis and capital accounts, but the $30,000 ending debt share is not included in the capital account balance.
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