What formula represents a partnership's basis and capital account?

The correct answer reflects the relationship between a partner's capital account and their share of the partnership's liabilities. In a partnership, a partner's basis in the partnership generally consists of their capital contributions and their proportionate share of the partnership's liabilities.

When a partner contributes capital, this amount is added to their capital account. Additionally, partners are also considered to have a share in the liabilities of the partnership. This share increases their overall basis in the partnership since they may be responsible for those liabilities. Therefore, the total basis of a partner is the sum of the capital account and the share of liabilities. As a result, the formula accurately represents how to calculate a partner's basis in the partnership.

Understanding this formula is essential for partners to determine their equity interest and for tax reporting purposes, as it impacts calculations related to distributions, sales of partnership interests, and allocations of income or loss.