Question

Ming recently invested $11,000 in purchasing a limited partnership interest. His share of the debt in the partnership is $3,000, but he is not personally responsible for paying the debt in the event the partnership cannot pay it. In addition, Ming’s share of the limited partnership loss for the year is $12,000, his share of income from a different limited partnership was $3,000 and he had $7,000 of dividend income from the stock he owns.

a. What is Ming’s tax basis in the limited partnership after considering his $12,000 loss for the year?

b. What is Ming’s at-risk amount in the limited partnership after considering the $12,000 loss for the year?

c. How much of Ming’s $12,000 loss from the limited partnership can he deduct in the current year?

Answer 1

(a) A partner's tax basis is equal to the adjusted basis of property contributed or cash paid plus any income recognised by the partner plus the partner's share of liabilties and adjusted each year for his/her share of the partnership income or loss.

Calculation of Ming's tax basis in partnership after considering loss for the year

Particulars	Amount($)
Investment for partnership interest	11000
Add: Share of debt in partnership	3000
	14000
Less: Share of partnership loss	12000
Tax basis	2000

The tax basis cannot be negative.Because Ming's $14,000 basis before his loss was larger than his loss, the loss is not limited by his tax basis.

(b) At-risk rules limits the amount of loss a partner can claim. They prevent the partners from writing off more than the amount they invested in a partnership.

in the given case Ming's at risk amount is $11000, before considering the loss. This is the amount he invested to purchase the partnership interest. We dont consider his share of debt as he is not personally responsible for paying the debt in the event the partnership cannot pay it.

After loss of $12000 is considered Ming's at risk amount becomes zero as any loss in excess of at-risk amount is to be carried forward to the next year

(c) Ming's $12000 loss is limited to the at-risk amount of $11000 as stated above. The balance $1000 is carried forward to the next year.

Furthur this $11000 loss is again limited to $3000 of passive income that he recieves from another from a different limited partnership. Thus the balance $ 8000 ( 11000 - 3000 ) is passive activity loss carryover which also gets carried forward to next year.

Thus out of the $ 12000 loss Ming may deduct only $ 3000.