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?
a) $53,750 ordinary income and $3,000 long term capital gain.
|rent and utilities expense||-180,000|
|guaranteed payment to Ryan||-10,000|
|Cameron must report income for the tax year||53,750|
share in long term capital gain (12,000*25%)=$3,000
|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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