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3 January, 11:25

Gray is a 50% partner in Fabco Partnership. Gray's tax basis in Fabco on January 1, year 4, was $5,000. Fabco made no distributions to the partners during the year 4 and recorded the following:

1. Ordinary Income $20,000

2. Tax-exempt income $8,000

3. Portfolio income $ 4,000

What is Gray's tax basis in Fabco on December 31, year 4?

a. $21,000 b. $16,000 c. $12,000

d. $10,000

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Answers (1)
  1. 3 January, 11:36
    0
    Option (a) is correct.

    Explanation:

    Total income:

    = Ordinary Income + Tax-exempt income + Portfolio income

    = $20,000 + $8,000 + $4,000

    = $32,000

    Gray is a 50% partner,

    Share of Gray in income = 50% of Total income

    = 50% * $32,000

    = $16,000

    Therefore, the Gray's tax basis in Fabco on December 31, year 4 is as follows:

    = Gray's tax basis in Fabco on January 1, year 4 + Share of Gray in income

    = $5,000 + $16,000

    = $21,000
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