Question

In 20X1, Waters LLC generates ordinary business income of $40,000 and makes no distributions to its partners. In 20X2, Waters recognizes $0 ordinary income, but makes a $20,000 total cash distribution to its partners. Pink, a 25% member in Waters, has an outside basis in Waters of over $200,000 when 20X1 begins. What amount of income will Pink recognize in 20X1 and 20X2

Answer 1

$10,000 in 20X1 and $0 in 20X2

Step-by-step explanation:

Pink is allocated $10,000 ($40,000 x 25%) of income in 20X1. In 20X2, Pink is allocated $0 income, as distributions are generally NOT taxable if they do not exceed basis