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Kari is a partner in Lizard Partnership. This year, Kari's share of partnership ordinary income is $20,000 and she received a cash distribution of $30,000. Kari's tax basis in her partnership interest at the beginning of the year was $50,000. Her marginal tax rate is 25 percent.

a. Calculate the tax cost of Kari's partnership earnings this year.

b. Compute Kari's after-tax cash flow from her partnership activity this year.

c. Compute Kari's tax basis in her partnership interest at the ending of the year. Assume no change in her share of partnership liabilities during the year.

Respuesta :

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Answer:

(a) 5000 (b)25000 (c)40000

Explanation:

Solution

(a)The tax on ordinary income share = 20000*25% = 5000

(b)  The total  distribution of cash from partnership = 30000

So,

Less: Tax on above = 5000 , and after tax cash flow = 25000

(c)  Now,

The basis at beginning of year = 50000

Thus,

Add: Ordinary Income = 20000  and the  adjusted basis = 70000

so,

Less: cash distribution = 30000

The End of the year basis = (70000-30000)

= 40000

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