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Wanda is a 20 percent owner of Video Associates, which is treated as a passthrough entity for
federal income tax purposes. This year, Wanda was allocated $45,000 of ordinary income from
Video Associates, $1,000 of tax-exempt interest income, and $2,000 of nondeductible expenses.
Wanda also received a $10,000 distribution from Video Associates this year. At the beginning of
the year, Video Associates had outstanding debt of $100,000. At the end of the year, the entity’s
outstanding debts increased to $130,000.
If Video Associates is a partnership, and her basis in her partnership interest at the beginning of
the year is $30,000, determine Wanda’s tax basis in her partnership interest at year-end.
If Video Associates is an S corporation, and her basis in her S corporation stock at the beginning
of the year is $10,000, determine Wanda’s tax basis in her corporate stock at year-end.
Solution
ans a Beginning Basis $30,000 Ordinary income allocated 45000 Tax exempt interest
income $1,000 Non dedcutible expenses -2000 Cash distribution ($10,000) Share in
outstanding debt (130000-100000)*20% $6,000 Ending bais $70,000 ans b Beginning
Basis $10,000 Ordinary income allocated 45000 Tax exempt interest income $1,000 Non
dedcutible expenses -2000 Cash distribution ($10,000) Ending bais $44,000

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Wanda is a 20 percent owner of Video Associates, which is treated as.pdf

  • 1. Wanda is a 20 percent owner of Video Associates, which is treated as a passthrough entity for federal income tax purposes. This year, Wanda was allocated $45,000 of ordinary income from Video Associates, $1,000 of tax-exempt interest income, and $2,000 of nondeductible expenses. Wanda also received a $10,000 distribution from Video Associates this year. At the beginning of the year, Video Associates had outstanding debt of $100,000. At the end of the year, the entity’s outstanding debts increased to $130,000. If Video Associates is a partnership, and her basis in her partnership interest at the beginning of the year is $30,000, determine Wanda’s tax basis in her partnership interest at year-end. If Video Associates is an S corporation, and her basis in her S corporation stock at the beginning of the year is $10,000, determine Wanda’s tax basis in her corporate stock at year-end. Solution ans a Beginning Basis $30,000 Ordinary income allocated 45000 Tax exempt interest income $1,000 Non dedcutible expenses -2000 Cash distribution ($10,000) Share in outstanding debt (130000-100000)*20% $6,000 Ending bais $70,000 ans b Beginning Basis $10,000 Ordinary income allocated 45000 Tax exempt interest income $1,000 Non dedcutible expenses -2000 Cash distribution ($10,000) Ending bais $44,000