Question

Sue invested $12,000 in the ABC Limited Partnership and received a 10 percent interest in the partnership. The partnership had $34,000 of qualified nonrecourse debt and $34,000 of debt she is not responsible to repay because she is a limited partner. Sue is allocated a 10 percent share of both types of debt resulting in a tax basis of $18,800 and an at risk amount of $15,400. During the year, ABC LP generated a ($97,000) loss. How much of Sue's loss is disallowed due to her tax basis or at-risk amount?

Zero; all of her loss is allowed to be deducted.


$3,400 disallowed because of her at-risk amount


$4,800 disallowed because of her tax basis


$6,800 disallowed because of her tax basis


$6,800 disallowed because of her at-risk amount

Answer 1

Option (B) is correct.

Step-by-step explanation:

Invested amount = $12,000

Interest received in partnership = 10%

qualified non-recourse debt in partnership = $34,000

Loss allowed = $15,400 (At risk amount)

Tax basis = $18,800

Disallowed loss = Loss allocation - Risk amount

= $18,800 - $15,400

= $ 3,400