Question

partner kingslys outside basis is $100. he actively participates in the business. his k1 shows a $150 loss on line 1 ordinary business income or loss. how much of the loss can kingsley deduct on his personal tax return

Answer 1

There are two types of Tax bases in Partnership. They are a) Inside basis b) Outside bases.

Inside Basis: It is the partnership's tax basis in the Individual's tax basis. When the partner contributes any property in the partnership, the fair market value of the property is taken as the partnership basis.

Outside Basis: Outside Basis is the tax basis of each partner's contribution or interest in the partnership.

Any profits or losses from the partnershi[p firm is reduced to the limit of the adjusted basis of the partner in the beginning of the year. If there are any excess losses carry forward to the next year. Any profits for the year increases the adjusted basis while the losses reduces the adjusted basis for the next year.

In the given situation, Kingsly's outside basis is $100. His loss from the partnership business is $150.

His loss to the extent of his begining adjusted basis is allowed for deduction which is $100 and the remaining $50 is carried forward for the next year when he has the positive share of income from partnership business.