[17] Gleim #: 9.1.41 Partnership LIFE’s profits and losses are shared equally am

Question

[17] Gleim #: 9.1.41 Partnership LIFE’s profits and losses are shared equally among the four partners. The adjusted basis of Partner E’s interest in the partnership on December 31, Year 1, was $25,000. On January 2, Year 2, Partner E withdrew $10,000 cash. The partnership reported $200,000 as ordinary income on its Year 2 partnership return. In addition, $5,000 for qualified travel, meals, and entertainment was shown on a separate attachment to E’s Schedule K-1 of Form 1065. Due to the limitation, $2,500 of the $5,000 is unallowable as a deduction. What is the amount of E’s basis in the partnership on December 31, Year 2?

Explanation / Answer

Answer:

Step 1. As partners share profits and losses equally - share of Parner E out of Year 2 Ordinary income is as follows;

$ 200,000/4 = $ 50,000

Step 2 Partner E's Basis for year 1 was $ 25,000

Step 3 Drawings - Partner E withdrew $ 10,000 cash  

Step 4 schedule k-1 - $ 5000 shown as an attachment towards travel and meals and of which $ 2500 is disallowed

step 5 - So the Basis of Partner E's for year 2 is as follows:

the Basis of Partner E's of year 1 $ 25,000

Less: Partment E withdrew during the year $ 10,000

Add: share of Profit for year 2 [ step 1] $ 50,000

Less: Allowable expenditure out of $ 5000 $ 2,500

the Basis of Partner E's as on dec 31, year 2 is $ 62,500

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