Question

[The following information applies to the questions displayed below.]

Jenna began the year with a tax basis of $30,000 in her partnership interest. Her share of partnership debt consists of $11,000 of recourse debt and $14,000 of nonrecourse debt at the beginning of the year and $11,000 of recourse debt and $18,000 of nonrecourse debt at the end of the year. During the year, she was allocated $50,000 of partnership ordinary business loss. Jenna does not materially participate in this partnership and she has $7,000 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

Hello Student

a.Because Jenna’s basis before the loss allocation is $30,000, $20,000 of his $50,000 loss allocation is limited by his tax basis and will carryover to the following year Ans is $50,000

b.Of the $30,000 loss not already limited by Jenna's’s tax basis, $18,000 is limited because Jenna's at-risk amount is only $12,000 ($30,000 regular tax basis less the $18,000 nonrecourse debt not allowed in calculating the at-risk amount). Thus, $12,000 of loss remains after the tax basis and at-risk limitations, and Jenna's has a $18,000 at-risk carryover. Ans is $12,000

c.Because Jenna doesn’t materially participate in the partnership, She may only deduct the $12,000 loss remaining after the tax basis and at-risk limitations to the extent he has passive income from other sources. Thus, she may deduct $7,000 of the $12,000 loss currently and will have a $5,000 passive activity loss carryover Ans is $5,000