Question

Jayanthi and Krish each own a 50 percent general partner interest in the JK Partnership. The following information is available regarding the partnership's 2022 activities:

Sales revenue $740,000
Selling expenses $296,000
Depreciation expense $33,500
Long-term capital gain $7,700
Nondeductible expenses $2,450
Partnership debts, beginning of the year $192,000
Partnership debts, end of the year $214,300
Partnership distributions:
Jayanthi $96,000
Krish $96,000

a1. Calculate the partnership’s ordinary (nonseparately stated) income.
a2. Indicate which items must be separately stated by selecting "yes" and which items must not be separately stated by selecting "no".
b. Calculate Jayanthi’s allocable share of partnership items.
c. If Jayanthi has no other sources of taxable income, what is her total gross income for 2022?
d. At the beginning of the year, Jayanthi’s adjusted tax basis in her partnership interest was $31,750. Calculate her ending adjusted tax basis in her partnership interest.

Answer 1

The partnership's ordinary income is $408,050, with Jayanthi's share being $204,025. Her total gross income for 2022 is $207,875. Jayanthi's ending adjusted tax basis in her partnership interest is $154,775.

Step-by-step explanation:

Calculation of Ordinary Income and Jayanthi's Allocable Share

To calculate the partnership's ordinary income, we need to consider sales revenue, selling expenses, depreciation expense, and nondeductible expenses. To find the ordinary income, which is not separately stated, the formula is:
Sales Revenue - Selling Expenses - Depreciation Expense - Nondeductible Expenses = Ordinary Income.

Using the given numbers:

• Sales Revenue: $740,000
• Selling Expenses: $296,000
• Depreciation Expense: $33,500
• Nondeductible Expenses: $2,450

So, the partnership's ordinary income is:

$740,000 - $296,000 - $33,500 - $2,450 = $408,050.

As for Jayanthi's allocable share, since she owns 50% of the partnership, her share of ordinary income is:

50% of $408,050 = $204,025.

Additionally, some items must be separately stated, such as long-term capital gains ($7,700) and nondeductible expenses ($2,450). Jayanthi's share of each would therefore be $3,850 and $1,225, respectively.

Calculation of Jayanthi's Total Gross Income for 2022

Jayanthi's total gross income for 2022 includes her share of ordinary income and her share of the separately stated item of long-term capital gains. Therefore, it is $204,025 (ordinary income share) + $3,850 (capital gain share) = $207,875.

Adjustment of Jayanthi's Tax Basis in the Partnership

Jayanthi's adjusted tax basis at the beginning of the year was $31,750. The tax basis is adjusted by adding any increased share of partnership debts, her share of the income, and subtracting any distributions. The calculations are as follows:

• Beginning basis: $31,750
• Increased share of partnership debts: ($214,300 - $192,000) / 2 = $11,150
• Share of the income: $204,025 (ordinary income) + $3,850 (capital gain) = $207,875
• Distributions: ($96,000)

Jayanthi's ending tax basis in the partnership is calculated as follows:

$31,750 + $11,150 + $207,875 - $96,000 = $154,775.