8. Cheryl and Rachel are equal partners in the C&R; partnership. On January 1 of

Question

8. Cheryl and Rachel are equal partners in the C&R; partnership. On January 1 of the current year, each partner's adjusted basis in the C&R; partnership was $120,000. During the current year, C&R; borrowed S180,000 for which Cheryl and Rachel are personally liable. C&R; sustained a net operating loss of $30,000 in the current year ended December 31. If liabilities and losses are shared equally by the partners, on January of the next year each partner's basis in her current interest in C&R; is: a. $15,000. b. $105,000 c. $120,000. d. e. $195,000. None of the above.

Explanation / Answer

Ans) option (D) $195,000

A partner's basis in his partnership interest is the combination of his capital account and his share of liabilities that he is personally liable for. The beginning basis of $120,000 should be decreased by each partner's share of the $30,000 operating loss or $15,000, and increased for each partners share of the liabilities or 90,000, for current calender year end basis of $195,000

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