Question

Producer owns both a 40% interest as a general partner and a 20% interest as a limited partner in PG-13 Associates, a motion picture production partnership which also pays Producer a $100,000 annual salary for her services as a full-time (1,500 hours per year) producer. After deducting Producer’s salary, the partnership has a $300,000 net loss in the current year. Producer’s aggregate outside basis for her partnership interests at the beginning of the year is $350,000. Producer’s outside basis is attributable to cash contributed to PG-13 Associates.

(a) What are the tax consequences to Producer from her interests in PG-13 Associates for the current year?

(b) What result in (a), above, if Producer spends most of her time farming and only devotes 300 hours during the year to PG-13?       

(c) What result in (b), above, if Producer had devoted 1,500 hours to PG-13 during each of the previous 5 years?

(d) What result in (b), above, if the partnership’s loss for the year is only $200,000 because it also realizes $60,000 of dividend income and $40,000 of net gains from sales of marketable securities?

(e) What result in (b), above, if Producer also has $75,000 of income from an interest in a “burned out” real estate limited partnership interest?

(f) What result in (b), above, if Producer also has a $25,000 loss from a rental real estate limited partnership interest?    

Answer 1