Question

styling shoes, llc, filed its 20x8 form 1065 on march 15, 20x9. styling had three members with the following ownership interests and tax bases at the beginning of 20x8: (1) jane, a member with a 25 percent profits and capital interest and a $7,500 outside basis, (2) joe, a member with a 45 percent profits and capital interest and a $12,500 outside basis, and (3) jack, a member with a 30 percent profits and capital interest and a $4,500 outside basis. the following items were reported on styling's schedule k for the year: ordinary income of $105,000, section 1231 gain of $17,500, charitable contributions of $27,500, and tax-exempt income of $5,500. in addition, styling received an additional bank loan of $14,500 during 20x8. what is jane's tax basis after adjustment for her share of these items?

Answer 1

Jane's tax basis after adjustment for her share of the Styling Shoes, LLC's Schedule K items and the additional bank loan is $39,500.

Step-by-step explanation:

To calculate Jane's tax basis after adjustment for her share of the reported items on Styling Shoes, LLC's Schedule K for the year, multiple steps are needed. Starting with her initial outside basis of $7,500, we must allocate the profits and adjust her basis with the Schedule K items based on her 25 percent ownership interest. The ordinary income reported was $105,000, the Section 1231 gain was $17,500, charitable contributions amounted to $27,500, and there was tax-exempt income of $5,500. Additionally, there was an extra bank loan of $14,500. Jane's basis would increase by her share of the ordinary income and Section 1231 gain, increase by tax-exempt income, and is not affected by the charitable contributions or the bank loan.

Here are the calculations:

• Initial outside basis: $7,500
• Her share of ordinary income: 25% of $105,000 = $26,250
• Her share of Section 1231 gain: 25% of $17,500 = $4,375
• Her share of tax-exempt income: 25% of $5,500 = $1,375
• Her share of charitable contributions does not affect basis.
• The bank loan does not affect individual member's basis.

Adding these to her initial basis:

Basis after adjustments = $7,500 (initial) + $26,250 (ordinary income) + $4,375 (Section 1231 gain) + $1,375 (tax-exempt income)

Basis after adjustments = $39,500