Question

Rebecca is a limited partner in the RST Partnership, which is not pubLiCly traded. Her allocable share of RST's passive ordinary losses from a nonrealty activity for the current year is ($60,000). Rebecca has a $40,000 adjusted basis (outside basis) for her interest in RST (before deduction of any of the passive losses). Her amount 'at risk' is $30,000 (before deduction of any of the passive losses). She also has $25,000 of passive income from other sources. She has no business losses for the year from other sources. How much of her ($60,000) allocable RST loss can Rebecca deduct on her current year's tax return?

1) $60,000
2) $40,000
3) $25,000
4) $30,000
5) None of these choices are correct.

Answer 1

Rebecca can deduct up to $30,000 of her $60,000 allocable loss from the RST Partnership on her current year's tax return, since that is the amount she is 'at risk'. Her adjusted basis and passive income from other sources do not increase the amount she can deduct beyond her at risk amount in this scenario.

Step-by-step explanation:

The question relates to the tax treatment of losses from a limited partnership. Specifically, we need to determine how much of Rebecca's $60,000 passive ordinary loss from a nonrealty activity she can deduct on her current year's tax return. According to the IRS rules on passive activity losses, losses can only be deducted up to the amount that the taxpayer is 'at risk' for the activity.

In Rebecca's case, she has a $40,000 adjusted basis in the RST Partnership and her amount 'at risk' is $30,000. Despite having $25,000 of passive income from other sources, the deduction of her passive losses from RST is limited to her 'at risk' amount. Therefore, before considering any other limitations, Rebecca can only deduct up to $30,000 of her passive ordinary losses for the current year.