Binita contributed property with a basis of $40,000 and a value of $50,000 to the BE Partnership in exchange for a 20% interest in partnership capital and profits. During the first year of partnership operations, BE had net taxable income of $30,000 and tax-exempt interest income of $10,000 . The partnership distributed $10,000 cash to Binita. Binita’s adjusted basis (outside basis) for her

partnership interest at year-end is:
a. $36,000.
b. $38,000.
c. $60,000.
d. $70,000.

RATIONALE: Binita is a 20% partner and shares in 20% of the partnership’s taxable and tax-exempt income, or $8,000 . Her basis is reduced by the cash distribution during the year. Binita’s ending basis is calculated as follows: $40,000 beginning basis + $8,000 [20% × ($30,000 + $10,000)] – $10,000 distribution.