Final answer:
Gina can claim an allowable loss of $27,500 against her adjusted basis of $15,000 plus her 50% share of the increased recourse liabilities ($12,500), resulting in an end-of-year adjusted basis of $0 in LMN partnership.
Step-by-step explanation:
The question relates to a partner's allowable loss and adjusted basis in a partnership in the context of tax accounting. When a partnership reports a loss, such as the $63,000 ordinary loss indicated in the question, each partner can deduct their share of the loss from their tax return, but only up to their adjusted basis in the partnership at the beginning of the year. In this scenario, Gina, as a 50% partner, would initially compute her share of the loss to be $31,500 (50% of $63,000). However, her initial basis is only $15,000. Since partners are also liable for their share of partnership liabilities, Gina can increase her basis by her share of the increased recourse liabilities, which is $12,500 (50% of $25,000). Adding this to her initial basis, we get an adjusted basis of $27,500. This means Gina can claim her entire share of the $31,500 loss, limited to the adjusted basis of $27,500. Consequently, Gina's allowable loss is $27,500 and her adjusted basis in LMN at the end of the year becomes $0 as her entire basis has been absorbed by the loss.