Question

George is a limited partner in the GLH Partnership. His outside basis is $40,000 before considering the current year items, and includes a $10,000 recourse debt share and a $20,000 nonrecourse debt share. The nonrecourse debt is qualified nonrecourse financing. GLH reported a $200,000 loss for the year, of which George’s 40% share is $80,000. George has passive activity income of $50,000 from another activity (not eligible for the special real estate deduction). How much of the $80,000 loss can George deduct this year?

Answer 1

Ans: George can deduct any losses that meet the basis (§ 704(d)), at risk (§ 465), and passive (§ 469) loss limitations, in that order. George’s basis is $40,000, so the remaining $40,000 is suspended under the basis limitation. The $20,000 nonrecourse debt cannot be included in George’s amount at risk, so an additional $20,000 is suspended under § 465, and George can evaluate the remaining $20,000 under the passive loss limitations. George has passive income from other sources of $50,000, so there is no further limitation. George can deduct the $20,000 loss that passed the basis and at risk limitations.