Question

Sue invested $6,500 in the ABC Limited Partnership and received a 10 percent interest in the partnership. The partnership had $23,000 of qualified nonrecourse debt and $23,000 of debt Sue is not responsible to repay because she is a limited partner. Sue is allocated a 10 percent share of both types of debt, resulting in a tax basis of $11,100 and an at-risk amount of $8,800. During the year, ABC LP generated a ($111,000) loss. How much of Sue's loss is disallowed due to her tax basis or at-risk amount

Answer 1

Sue's loss worth $2,300 is disallowed because of her at-risk amount.

Step-by-step explanation:

Loss disallowed refers to the amount of loss that cannot be deducted for the purpose of calculating the taxable amount. In the given scenario, we first calculate the loss allowed and then deduct it from loss allocation to determine the loss disallowed amount.

Loss allowed is the at-risk amount which equals $8,800.

Hence, loss allowed = $8,800

Loss allocation = $11,100

Disallowed loss = Loss allocation - Loss allowed

= $11,100 - $8,800

= $2,300