$$Regarding a partner's basis in the partnership interest, classify each of the following as either an item that "Increases basis" or one that "Decreases basis".

$1.$Distribution from the partnership

Increases basisDecreases basis

$2.$Gain recognized under $721($b$)$

Increases basisDecreases basis

$3.$Partner$\text{'}$s liability assumed by the partnership

Increases basisDecreases basis

$4.$The partner's share of taxable income

Increases basisDecreases basis

$5.$Additional contribution to the partnership

Increases basisDecreases basis

$6.$The partner's share of separately stated deductions, foreign taxes, losses, and nondeductible$/$noncapitalized expenses

Increases basisDecreases basis

$7.$The partner's share of any partnership liability

Increases basisDecreases basis

Question Content Area

b$.$Complete the following sentences regarding a partner's basis.

A partner's basis is

adjusted when necessarynever adjusted

to determine the basis for the partnership interest.

A partner's basis may never be reduced below zero $($i$.$e$.,$ no negative basis is allowed$).$

TrueFalse

Basis adjustments preserve the partnership's

single$-$leveldual$-$level

of taxation. If basis is

decreasedincreased

by partnership income, that income

wouldwould not

be taxed again when the partner sells the partnership interest at its fair market value.

Question Content Area

c$.$Where can you find a partner's basis calculation?

The partner's basis is generally

includednot included

in the partnership tax return; instead, basis records are maintained by the partner. However, you can often approximate the partner's tax basis by adding two amounts on Schedule K$1$: the partner's share of partnership liabilities,

minusplus

the partner's ending tax basis capital account balance.