Question

Lucy sells her partnership interest, a passive activity, with an adjusted basis of $305,000 for $330,000. In addition, she has current and suspended losses of $28,000 associated with the partnership and has no other passive activities. Calculate Lucy’s total gain and her current deductible loss. Describe the type of income that the deductible loss may offset.

Answer 1

Lucy has a total gain of $25,000 from the sale of her partnership interest and a current deductible loss of $28,000, which can offset her ordinary income.

Step-by-step explanation:

Partnership Interest Sale:

Lucy has a total gain of $25,000 from the sale of her partnership interest ($330,000 sale price - $305,000 adjusted basis). The current deductible loss she can claim is $28,000, which equals her current and suspended losses. This loss can offset her ordinary income, such as wages, interest, and non-passive business income, making it particularly valuable for tax purposes.

Total gain: $25,000 Suspended losses: $28,000 Current deductible loss: Total gain - Suspended losses = $25,000 - $28,000 = $0 (since the suspended losses are greater than the total gain) The deductible loss from the partnership can be offset against other passive activities. If Lucy has any other passive activities with gains, the deductible loss can be used to offset those gains.