Question

Zelda owns a 60 percent general interest in YZ Partnership. At the beginning of 2018, the adjusted basis in her YZ interest was $95,000. For 2018, YZ generated a $210,000 business loss, earned $14,600 dividend and interest income on its investments, and recognized a $6,200 capital gain. YZ made no distributions to its partners and had no debt.a. Compute Zelda’s adjusted basis in her YZ interest before loss deduction in 2018.

b. Compute Zelda’s adjusted basis in her YZ interest at the end of 2018.

Answer 1

Zelda's adjusted basis in the YZ Partnership before the loss deduction is $107,480. After accounting for her share of the partnership loss, her adjusted basis would potentially reduce to below zero. However, as the basis cannot go below zero, it remains at zero at the end of 2018, with the excess loss carried forward.

Step-by-step explanation:

To calculate Zelda's adjusted basis in her YZ Partnership interest, we must take into account her share of the partnership's income, gain, loss, and deductions for the year 2018. This process includes two primary steps:

Compute Zelda's adjusted basis before the loss deduction

1. Start with her initial adjusted basis: $95,000
2. Add her share of the dividend and interest income (60% of $14,600): $8,760
3. Add her share of the capital gain (60% of $6,200): $3,720

Adding these amounts together:

$95,000 (initial adjusted basis) + $8,760 (income) + $3,720 (capital gain) = $107,480

Compute Zelda's adjusted basis at the end of 2018

1. Subtract her share of the partnership loss (60% of $210,000): $126,000

Subtracting the loss from her adjusted basis before the loss deduction:

$107,480 (basis before loss) - $126,000 (loss) = - $18,520

However, a partner's adjusted basis cannot go below zero. Therefore, her adjusted basis at the end of 2018 would be zero, and any remaining loss of $18,520 would be carried forward to the subsequent year, subject to limitation under tax law.