Question

On January 1, X9, Gerald received his 50 percent profits and capital interest in High Air, LLC, in exchange for $2,800 in cash and real property with a $3,800 tax basis secured by a $2,800 nonrecourse mortgage. High Air reported a $15,800 loss for its X9 calendar year. How much loss can Gerald deduct, and how much loss must he suspend if he only applies the tax basis loss limitation

Answer 1

The answer is "$2,700".

Step-by-step explanation:

`Cash= \$2,800\\\\ Real\ Property= \$3,800 \\\\ Nonrecourse \ mortgage =\$2,800\\\\ Loss \ reported =\$15,800`

`\text{Initial tax base for Gerald} =`

`\text{cash exchange} + \text{real property tax base}-\text{mortgage with no recourse} +(50 \% * \$2,800)`

`= \$ 2,800+\$3,800-\$2,800+(50\% * \$2,800)\\\\ = \$2,800+\$3,800-\$2,800+\$1,400\\\\= \$5,200`

Gerald's loss will be given
`50\%`, i.e.
`\$15,800 * 50\% = \$7,900`

Gerald will actually only subtract his salary, and therefore Gerald would only deduct $5,200.

Losses of
`\$2,700 (\$7,900-\$5,200)` were suspended but continued indefinitely.