[Anonymous]

I am studying for Reg exam and I cam across this question:

Gray is 50% partner in Fabco partnership. Gray’s tax basis in Fabco at the beginning of the year was $5,000. Fabco made no distributions to the partner during the year and recorded the following:

Ordinary income: $20,000

Tax exempt income: $8,000

Portfolio income: $4,000

What’s Gray tax basis in Frabco at the end of the year?

The answer is $21,000

My only question is about the formula to calculate the Partner basis:

Beginning capital account +% of all income -%all losses – withdrawals = ending capital income +% recourse liabilities = year -end basis.

I believe that “income” includes ordinary, capital, and tax-free. I wonder why in the above question they included portfolio income in calculation?

Thanks in advance for explanation.

[highlightnumb]

HI CPANB

Just remember when calculating the basis of an individual make sure to include ALL income items in their basis calculation. Interest income, dividend income, investment income, capital gains, royalties etc are all Portfolio income items. Remember ALL income items are part of calculating the individuals basis in a partnership/s corp. Hope this helps 🙂

Mario Marcel, CPA

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