Question

1. Lex and Luther are equal partners in the accrual basis LL Partnership. At the beginning of 2018, Lex’s basis in the partnership (including his share of liabilities) was $150,000. At the beginning of 2018, the partnership’s debts totaled $120,000 payable to unrelated parties. All partnership debt is shared equally between the partners. The following is information about LL’s 2018 operations: Ordinary Income 110,000 Interest from City Bond 5,000 §1231 Gain 8,000 LTCL 2,000 STCL 1,700 Political Contributions 3,500 Charitable Contribution to Red Cross 1,000 Cash distribution to Lex 19,000 Payment of Lex’s personal expenses 2,000 At the end of 2018 partnership debt payable to unrelated parties is $170,000. a. What will Lex include in his taxable income for 2018 as a result of LL’s activities? b. What is Lex’s basis in the partnership interest at the end of 2018?

Answer 1

Answer -

A per given information,

Ordinary income	110000
Interest-city bond	5000
§1231 Gain	8000
LTCL	2000
STCL	1700
Political contributions	3500
Charitable contributions to Red Cross	1000
Cash distribution to Lex	19000
Payment of Lex's personal expenses	2000

At beginning of 2018, Lex's basis in the partnership = $150000

At beginning of 2018, partnership debt total = $120000

At end of 2018, partnership debt total = $170000

So, Increase in debt = $50000 ($170000 - $120000)

a. Answer -

Lex include Following items in his taxable income for 2018 as a result of LL’s activities :

	On Tax Return
Ordinary income	$55000
Separately stated items :
§1231 Gain	$4000
LTCL	($1000)
STCL	($850)
Charitable contributions to Red Cross	($500)

Note : Ordinary income and separately stated items shared equally between the partners.

Not taxable / Not deductible items
Interest-city bond	$2500
Political contributions	$1750
Cash distribution to Lex	$19000
Payment of Lex's personal expenses	$2000

Interest-city bond and political contributions are also shared equally between the partners.

b. Answer -

Here, Increase debt shared equally between the partners.

So,

Computation of Lex’s basis in the partnership interest at the end of 2018.

At beginning basis	$150000
Additions :
Debt increases	$25000
Ordinary income	$55000
§1231 Gain	$4000
Interest-city bond	$2500
Deductions :
Debt decreases	0
Cash distribution to Lex	($19000)
Payment of Lex's personal expenses	($2000)
Non deductible items (Political contribution	($1750)
LTCL	($1000)
STCL	($850)
Charitable contributions to Red Cross	($500)
At ending basis	$211400