Question

Jenna began the year with a tax basis of $45,000 in her partnership interest. her share of partnership liabilities consists of $6,000 of recourse liabilities and $10,000 of nonrecourse liabilities at the beginning of the year and $6,000 of recourse liabilities and $13,000 of nonrecourse liabilities at the end of the year. during the year, she was allocated $65,000 of partnership ordinary business loss. jenna does not materially participate in this partnership, and she has $4,000 of passive income from other sources. a. how much of jenna’s loss is limited by her tax basis?

Answer 1

Jenna's tax basis is used to determine the amount of her share of partnership losses that she can deduct on her tax return. Her tax basis at the beginning of the year is $45,000, but it is reduced by her share of liabilities to determine the final tax basis. The amount of Jenna's loss limited by her tax basis is $42,000.

Step-by-step explanation:

Jenna's tax basis is used to determine the amount of her share of partnership losses that she can deduct on her tax return. It is calculated by adding her initial tax basis to her share of the partnership liabilities at the beginning of the year, and then subtracting her share of the partnership liabilities at the end of the year. In this case, her tax basis at the beginning of the year is $45,000, her share of recourse liabilities is $6,000, and her share of nonrecourse liabilities is $10,000. At the end of the year, her share of recourse liabilities is $6,000 and her share of nonrecourse liabilities is $13,000.

Therefore, her tax basis at the beginning of the year is $45,000 + ($6,000 + $10,000) = $61,000. At the end of the year, her tax basis is $61,000 - ($6,000 + $13,000) = $42,000.

Her tax basis limits the amount of partnership losses that she can deduct. Since her partnership ordinary business loss is $65,000, only the amount up to her tax basis can be deducted. So, the amount of Jenna's loss limited by her tax basis is $42,000.