Required information Problem 21-32 (LO 21-1) (Algo) Skip to question [The following information applies to the questions displayed below.] Allison, Keesha, and Steven each owns an equal interest in KAS Partnership, a calendar-year-end, cash-method entity. On January 1 of the current year, Steven's basis in his partnership interest is $29,500. During January and February, the partnership generates $33,300 of ordinary income and $5,280 of tax-exempt income. On March 1, Steven sells his partnership interest to Juan for a cash payment of $50,500. The partnership has the following assets and no liabilities at the sale date: Tax Basis FMV Cash $ 35,000 $ 35,000 Land held for investment 35,000 70,000 Totals $ 70,000 $ 105,000 Problem 21-32 Part a (Algo) a. Assuming KAS's operating agreement provides for an interim closing of the books when partners' interests change during the year, what is Steven's basis in his partnership interest on March 1 just prior to the sale?

To calculate Steven's basis in his partnership interest on March 1 just prior to the sale, we need to consider his initial basis and adjust it for his share of the partnership's income and any other changes up to the date of sale. Steven's initial basis: $29,500 From January 1 to March 1, the partnership generates ordinary income and tax-exempt income. Steven's share of these amounts would be one-third, since he owns an equal interest with Allison and Keesha. Steven's share of ordinary income: $33,300 * 1/3 = $11,100 Steven's share of tax-exempt income: $5,280 * 1/3 = $1,760 Now, we add these amounts to Steven's initial basis to find his basis just prior to the sale: Steven's adjusted basis = Initial basis + Share of ordinary income + Share of tax-exempt income Steven's adjusted basis = $29,500 + $11,100 + $1,760 Steven's adjusted basis = $42,360 Therefore, Steven's basis in his partnership interest on March 1 just prior to the sale is $42,360.

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