Question

Darlene has a tax basis and at-risk basis of $10,000 in a partnership where she is a 50% owner. Darlene materially participates in the operations of the business. The partnership incurred a loss of $35,000 in the current year. How much of the loss will be allocated to Darlene and how much will she be able to deduct in the current year?

Answer 1

Darlene will be allocated $17,500 of the partnership's loss and will be able to deduct $10,000 in the current year.

Step-by-step explanation:

Darlene, as a 50% owner of the partnership, will be allocated 50% of the partnership's loss. In this case, 50% of $35,000 is $17,500. However, to determine the deductible amount, we need to consider Darlene's tax basis and at-risk basis. Since both amounts are $10,000, she can deduct the full amount of $10,000 from the partnership loss in the current year. The remaining $7,500 will be carried forward and can be used to offset future income from the partnership.