Question

Tiara, Lauryn, and Camee formed TL&C, a general partnership, as equal partners. Tiara contributed $5,000 cash. Lauryn contributed $25,000 cash and property with an adjusted basis of $25,000 and a FMV of $35,000. Camee contributed property with an adjusted basis of $43,000 and a FMV of $55,000. The partnership made $90,000 in ordinary income for the year, and there were no cash or property distributions. What is Tiara's ending tax capital account?

a) $5,000
b) $15,000
c) $10,000
d) $0

Answer 1

Tiara's ending tax capital account in the TL&C general partnership is $35,000.

Step-by-step explanation:

In a general partnership, each partner has a tax capital account which represents their ownership interest in the partnership. The tax capital account is calculated by adding the partner's initial contribution and their share of the partnership's income or loss.

In this case, Tiara contributed $5,000 cash, so her initial tax capital account is $5,000. The partnership made $90,000 in ordinary income, so each partner is entitled to their share of the income based on their ownership percentage.

Since all partners are equal partners in this case, they would each be entitled to 1/3 of the income, which is $30,000. Therefore, Tiara's ending tax capital account would be $5,000 (initial contribution) + $30,000 (her share of the income) = $35,000.