Question

What is the correct order for applying the following three items to adjust a partner's tax basis in his partnership interest: (1) Increase for share of ordinary business income, (2) Decrease for share of separately stated loss items, and (3) Decrease for distributions

Answer 1

Answer: 1, 2, and then 3

Step-by-step explanation:

To adjust a partner's basis in the partnership, first increase the basis for a share of ordinary business income as this adds to their interest.

Then decrease for share of separately stated loss items as these are losses and will reduce the basis. Finally decrease the basis for any distributions because distributions reduce a partner's interest.