Question

George is a limited partner in the GLH Partnership. His basis is $40,000 before considering the current year operations, and includes a $20,000 recourse debt share and a $10,000 nonrecourse debt share. The nonrecourse debt is not treated as qualified nonrecourse financing. GLH reported a $200,000 loss for the year, of which George's 40% share is $80,000. George has passive income of $50,000 from another activity (not eligible for the special real estate deduction). He has no business losses for the year from other sources. How much of the $80,000 GLH loss can George deduct this year?

a. $80,000.
b. $30,000.
c. $50,000.
d. $40,000.
e. $10,000.

Answer 1

George can deduct $30,000 of the $80,000 GLH loss this year.

Step-by-step explanation:

George can deduct $30,000 of the $80,000 GLH loss this year.

To calculate the deductible amount, George first needs to determine his at-risk amount. This is the amount of money George could lose if the partnership fails.

George's at-risk amount is the sum of his basis and his share of the partnership's debts that he is personally liable for, which includes the recourse debt share. In this case, George's at-risk amount is $40,000 (basis) + $20,000 (recourse debt) = $60,000.

George's allowable loss is limited to his at-risk amount. Since the partnership reported a $200,000 loss and George's share is 40%, his share of the loss is $80,000. However, since his at-risk amount is only $60,000, he can only deduct up to that amount.

So, George can deduct $30,000 ($60,000 at-risk amount - $50,000 passive income) of the $80,000 GLH loss this year.