Question

Rubio recently invested $25,500 (tax basis) in purchasing a limited partnership interest. His at-risk amount is $18,850. In addition, Rubio’s share of the limited partnership loss for the year is $29,150, his share of income from a different limited partnership is $5,825, and he has $45,500 in wage income and $12,750 in long-term capital gains.

c. How much of Rubio’s $29,150 loss from the limited partnership can he deduct in the current year considering all limitations?

Answer 1

Rubio’s initial tax basis in the limited partnership is $25,500. Rubio’s $29,150 loss reduces his tax basis to zero leaving him with a $3,650 loss carryover because of the tax basis loss limitation. Rubio’s initial at-risk amount in the limited partnership is $18,850. Rubio’s $29,150 loss reduces his at-risk amount to zero leaving him with a $6,650 at-risk carryover ($25,500 loss allowed under the tax basis limitation less the $18,850 amount Rubio has at risk). After applying the tax basis and at-risk limitations, Rubio can potentially deduct $18,850 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 $5,825 (from another limited partnership), he may only deduct $5,825 of the $18,850 loss leaving him with a $13,025 passive activity loss that can be carried forward indefinitely.