Peter owns a 20 percent interest in XYZ partnership. At the beginning of 20X3, Peter's basis in his partnership interest is $5,000. During 20X3, the XYZ reports a $40,000 taxable income from its operations; $10,000 in interest income; and $15,000 section 1231 capital loss. XYZ distributes $2,000 to Peter during 20X3. What would be Peters basis at end the 20X3 tax year?

a. $5,000.

b. $7,000.

c. $10,000.

d. $12,000