Wilson has a 40 percent interest in the assets and income of the CC&W Partnership, and the basis in his partnership interest is $45,000 at the beginning of 2014. During 2014, the partnership's net loss is $60,000 and Wilson's share of the loss is $24,000. Also, Wilson receives a cash distribution from the partnership of $12,000 on June 30, 2014.

a. Indicate the amount of income or loss from the partnership that should be reported by Wilson on his 2014 individual income tax return.

b. Calculate Wilson's basis in his partnership interest at the end of 2014.

Answer and Explanation:

a. A partner can report his share of the loss of partnership on his personal income tax return to the base limit during his or her partnership interest.

Its partnership interest is based on $45,000 and its share of loss of the partnership is $24,000

So W can report all of the $24,000 partnership loss on his personal income tax return.

b. W's partnership loss reported on his income tax return, and the cash distributed by the partnership to him will reduce his partnership interest base.

Now,

W's basis in his partnership interest at the end of 2014 is

= W's basis in his partnership interest - Partnership loss reported by W on his income tax return - Cash distributed to W by the partnership

= $45,000 - $24,000 - $12,000

= $9,000