Question

In the current year, the CAR Partnership received revenues of $450,000 and paid the following amounts:...

In the current year, the CAR Partnership received revenues of $450,000 and paid the following amounts: $180,000 in rent, utilities, and salaries; a $45,000 guaranteed payment to partner Ryan; $10,000 to partner Amy for consulting services; and a $40,000 distribution to 25% partner Cameron. In addition, the partnership realized a $12,000 net long- term capital gain. Cameron’s basis in his partnership interest was $80,000 at the beginning of the year and included his $25,000 share of partnership liabilities. At the end of the year, his share of partnership liabilities was $10,000.

a. How much income must Cameron report for the tax year?

b. What is Cameron’s basis in the partnership interest at the end of the year?

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Answer #1

a) $53,750 ordinary income and $3,000 long term capital gain.

revenues 4,50,000
rent and utilities expense -180,000
salaries -45,000
guaranteed payment to Ryan -10,000
ordinary income 2,15,000
Cameron,s share 25%
Cameron must report income for the tax year 53,750

share in long term capital gain (12,000*25%)=$3,000

b)$81,750

beginning basis 80,000
plus:share of ordinary income 53,750
plus:share of net long-term capital gain 3,000
less:decrease in share of partnership liability(25,000-10,000) -15,000
less:cash distribution to Cameron -40,000
Cameron's basis in the partnership interest at the end of the year $81,750
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