Question

Jenna began the year with a tax basis of $41,000 in her partnership interest. Her share of partnership debt consists of $11,000 of recourse debt and $9,000 of nonrecourse debt at the beginning of the year and $11,000 of recourse debt and $11,000 of nonrecourse debt at the end of the year. During the year, she was allocated $52,000 of partnership ordinary business loss. Jenna does not materially participate in this partnership and she has $3,000 of passive income from other sources.

a. How much of Jenna’s loss is limited by her tax basis?

b. How much of Jenna’s loss is limited by her at-risk amount?

c. How much of Jenna’s loss is limited by the passive activity loss rules?

Answer 1

Solution:
a)	Jenna's beginning tax basis	$41,000
	Increased due to non- recourse debt	$2,000
	($11,00-$9,000)
	Total tax basis	$43,000
	Ordinary business loss	$52,000
	Jenna's loss is limited by her total tax basis	$43,000
	Loss carry forward ($52,000-$43,000)	$9,000
b)	Risk amount = Tax basis - Non-recourse debt
	= $43,000 - $11,000	$32,000
	Loss limited to $32,000 by her at risk amount
	$11,000 should be carry forward
c)	Jenna does not materially participate in the partnership
	Jenna 's loss by passive activity loss rules =	$29,000
	after passive income ($32,000-$3,000)
	So Jenna is allowed to deduct $3000 of
	$32,000 currently and may have $29,000
	Passive activity loss carryforward.
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