Question

Alfonso began the year with a tax basis in his partnership interest of $15,000. His share of partnership debt at the beginning and end of the year consists of $7,000 of recourse debt and $10,000 of nonrecourse debt. During the year, he was allocated $32,000 of partnership ordinary business loss. Alfonso does not materially participate in this partnership and he has $3,000 of passive income from other sources.A. How much of Alfonso’s loss is limited by his tax basis?

B. How much of Alfonso’s loss is limited by his at-risk amount?
C. How much of Alfonso’s loss is limited by the passive activity loss rules?

Answer 1

A.Alfonso began the year with a tax basis in his partnership interest of $15,000 which means Alfonso’s basis before the loss allocation is $15,000 and $17,000 of which $32,000 loss allocation is been limited by his tax basis which definitely will be carry over to the next following year.

B.$5,000 of loss will remains after the tax basis and at-risk limitations, and Alfonso will have a $10,000 at-risk carryover.

C. $2,000

Step-by-step explanation:

A.

Alfonso began the year with a tax basis in his partnership interest of $15,000 which means Alfonso’s basis before the loss allocation is $15,000 and $17,000 of which $32,000 loss allocation is been limited by his tax basis which definitely will be carry over to the next following year.

b.

Out of the $15,000 loss not limited by Alfonso’s tax basis, $10,000 is limited due to the fact that Alfonso’s at-risk amount is only $5,000( $15,000-$10,000)

Therefore $5,000 of loss will remains after the tax basis and at-risk limitations, and Alfonso will have a $10,000 at-risk carryover.

C.

Since Alfonso doesn’t participate in the partnership materially , he may try to only deduct the $5,000 loss which was left after the tax basis and at-risk limitations to the extent he has passive income from other sources. Hence, he may deduct $3,000 out of the $15,000 loss which will make him to have $2,000 as his passive activity loss carryover.