Question

Hi, I have the answers, but I don't understand how to get the answers. Please explain thoroughly.

Bob earns ($25,000) in passive losses from BHI partnership. He has an outside basis of $40,000 of which $30,000 comes from non-recourse debt, and he has passive income of $50,000.

What are the tax consequences to Bob? $10,000 deductible loss

What basis does Bob take in his partnership interest? $15,000

How much is Bob at-risk after the allocation? 0

How much, if any does Bob have in the way of suspended losses? 0

Answer 1

1) $30,000 from non-recourse debt do NOT increase the taxpayer's at-risk in an activity, so the tax consequences to Bob will be $10,000 deductible loss.

2) Passive Income = $50,000

Passive loss = $25,000 + $10,000 = $35,000

Therefore Bob's take in his partnership interest = $50,000 - $35,000 = $15,000

3) At the end of year , Bob’s tax basis remains at zero, as all current-year items of gross income have been offset by items of expense and Bob’s share of liabilities has not changed.

4) If net passive losses arise, they are not lost but are suspended and carried forward. If the suspended losses are not deductible in any given year, the amount of the suspended losses from each passive activity is determined and carried forward on a pro rata basis. The portion of the loss that is suspended and carried forward is determined by the ratio of net losses from that activity to the total net losses from all passive activities for the year. This allocation is necessary to determine the suspended losses for any particular activity; these are allowed in full upon disposition.

Hence in the given case Bob will not have suspended losses.