Question

Jenna began the tax 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

a) Jenna's loss limited by her tax basis

Non recourse debt (end) $18000

- Non recourse debt (beginning) ($14000)

=Increase in debt. $4000

Tax basis (beginning) $30000

+ Increse in debt computrd above. $4000

= Final tax basis. $34000

Loss allocation. $50000

- final tax basis. ($34000)

=loss limitation (tax basis) $16000

b) Jenna's loss limited by her at-risk amount

Regular tax basis. $34000

- non recourse debt disallowed. ($18000)

=Jenna @ risk. $16000

Loss remaining (50000-16000 from a above) $34000

-Jenna at risk deduction limit. $16000

= Jenna at risk carryover. $18000

c) Jenna's loss limited by passive activity loss

Loss remaining. $16000

- Passive income. ( $7000)

=loss limited by the passive activity loss $11000