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[The following information applies to the questions displayed below.] Rubio recently invested $20,000 (tax basis) in...

[The following information applies to the questions displayed below.]

Rubio recently invested $20,000 (tax basis) in purchasing a limited partnership interest. His at-risk amount is $15,000. In addition, Rubio’s share of the limited partnership loss for the year is $22,000, his share of income from a different limited partnership is $5,000, and he has $40,000 in wage income and $10,000 in long-term capital gains.


a. How much of Rubio’s $22,000 loss is allowed considering only the tax-basis loss limitations?

b. How much of the loss from part (a) is allowed under the at-risk limitations?

c. How much of Rubio’s $22,000 loss from the limited partnership can he deduct in the current year considering all limitations?

Solutions

Expert Solution

(a) Rubio’s initial tax basis in the limited partnership is $20,000. Rubio’s $22,000 loss reduces his tax basis to zero leaving him with a $2,000 loss carryover because of the tax basis loss limitation.

(b) Rubio’s initial at-risk amount in the limited partnership is $15,000. Rubio’s $22,000 loss reduces his at-risk amount to zero leaving him with a $5,000 at-risk carryover ($20,000 loss allowed under the tax basis limitation less the $15,000 amount Rubio has at risk).

(c) After applying the tax basis and at-risk limitations, Rubio can potentially deduct $15,000 of loss. However, because Rubio is a limited partner this loss is considered a passive loss. Therefore, Rubio may deduct this loss in the current year to the extent he has passive income. Because Rubio only has only passive income of $5,000 (from another limited partnership), he may only deduct $5,000 of the $15,000 loss leaving him with a $10,000 passive activity loss that can be carried forward indefinitely

ekkarill92 answered 3 months ago
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