RESEARCH PROJECT Jenkins has a one-third capital and profits interest in Maverick General Partnership. On January...

RESEARCH PROJECT

Jenkins has a one-third capital and profits interest in Maverick General Partnership. On January 1, year 1, Maverick has $120,000 of general debt obligations and Jenkins has a $50,000 tax basis (including his share of Maverick’s debt) in his partnership interest. During the year, Maverick incurred a $30,000 nonrecourse debt that is not secured by real estate. Because Maverick is a rental real estate partnership, Jenkins is deemed to be a passive participant in Maverick. His share of the Maverick losses for year 1 is $75,000. Jenkins is not involved in any other passive activities, and this is the first year he has been allocated losses from Maverick.

a) Determine how much of the Maverick loss Jenkins will currently be able to deduct on his tax return for year 1, and list the losses suspended due to tax-basis, at-risk, and passive activity loss limitations.

b) If Jenkins sells his interest on January 1, year 2, what happens to his suspended losses from year 1?

(Hint: See Internal Revenue Code Section 706(c)(2)(A), Regulation section 1.704-1(d)(1), Proposed Regulation Section 1.465-66(a) and Sennett v. Commissioner 80 TC 825 (1983).)

Solutions

Expert Solution

Deductible loss-$ 0

List the losses suspended due to tax basis, at-risk, and passive activity loss limitations.

Loss Suspended

Tax basis limitation ($15,000)

At risk limitation ($10,000)

Passive activity loss limitation ($50,000)

Explanation:

Jenkins may not deduct any losses currently, and he will have a $15,000 loss suspended by the tax basis limitation, a $10,000 loss suspended by the at-risk limitation, and a $50,000 loss suspended by the passive activity loss limitation as illustrated in the table below:

ekkarill92 answered 1 year ago

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