Question

Partnership P ("P") has two individual partners (A and B). Each are 50% owners in P. At the beginning of Year 1,
A's outside basis was $1,000 and B's outside basis was $10,000. During Year 1 P earned $2,000 of income from
operations, $1,000 of tax exempt income, and paid off $10,000 of a recourse liability. What income, gain or loss, if
any, will A report on A's individual income tax return (for Year 1) as a result of being a partner in P?

Answer 1

1. WORKING NOTES

     1. A and B are equal partners with 50 % ownership in Partnership "P"

     2. A 's Outside basis               = $1000

     3. B's outside basis                 = $ 10,000

    4. Earnings of P during year 1

        1. Income from operations     = $ 2000

   2. Tax Exempt income           = $1000

   5. Amount paid as Recourse liability    = $ 10,000

6 HOW A WILL REPORT IN HIS INCOME TAX RETURN FOR YE2

    1 Share of Income from Partnership   (2000 +1000) * 1000/11000 = 272.72

    2. Share of Rocourse debt paid = ( 10000 * 1000/11000)    = Loss 909.09