Question

1.

Exercise 10-17 (Algorithmic) (LO. 3)

Henrietta transfers cash of $259,200 and equipment with a fair market value of $77,760 (basis to her as a sole proprietor, $31,104) in exchange for a 40% profit and loss interest worth $336,960.

If an amount is zero, enter "0".

a. How much are Henrietta's realized and recognized gains?
Realized gain: $..............?
Recognized gain: $...........?

b. What is the amount of Henrietta's basis in her partnership interest?
$...................?

c. What is the partnership's basis in the contributed equipment?
$.................?

2.

Exercise 10-27 (Algorithmic) (LO. 12)

Tobias is a 50% partner in Solomon LLC, which does not invest in real estate. On January 1, Tobias's adjusted basis for his LLC interest is $164,000, and his at-risk amount is $131,200. His share of losses from Solomon for the current year is $213,200, all of which is passive. Tobias owns another investment that produced $114,800 of passive activity income during the year. (Assume that Tobias is a single taxpayer, there were no distributions or changes in liabilities during the year, and that the Solomon loss is Tobias's only loss for the year from any activity.)

How much of Solomon's losses may Tobias deduct on his Form 1040? How much of the loss is suspended and what Code provisions cause the suspensions?

Applicable Provision	Deductible Loss		Suspended Loss
Overall limitation	$		$
At-risk limitation	$		$
Passive loss limitation	$		$

Therefore, Tobias can deduct $......................? on his return in the current year.

Answer 1

Exercise 10-17:

Answer:

a.         Henrietta has a realized gain of $46,656 [$336,960 value of interest − $290,304 basis in contributed property ($259,200 cash + $31,104 equipment basis)]. None of this gain is recognized.

b.         Henrietta takes a substituted basis of $290,304 in the partnership interest.

c.         The partnership takes a carryover basis of $31,104 in the equipment.

Exercise 10-27 :

Answer:

Tobias may deduct $114,800 of losses from Solomon LLC. Tobias is limited to a $164,000 loss under the basis limitation, but only a $131,200 loss under the at-risk limitation. Because the loss from Solomon is passive (and not a real estate loss), Tobias’s loss is further limited to his $114,800 of passive income from other sources.