Question

Mia is a 50% partner in a partnership with a beginning of the year adjusted basis in her partnership interest of $50,000. For the current year, no distributions are made to partners, and there is no change in partnership liabilities. The partnership incurred a $140,000 ordinary loss for the year. How does Mia treat her loss in excess of basis?

A. She will recognize $3,000 this year and carry forward the balance.

B. She will first carry back the excess loss for two years and then carry forward the balance upto 20years.

C. She will first carry back the excess loss for three years and then carry forward the balance upto five years.

D. She will carry over the excess loss indefinitely until a subsequent year when she again has a positive basis in her partnership interest

Answer 1

Answer:

Correct answer is:

D. She will carry over the excess loss indefinitely until a subsequent year when she again has a positive basis in her partnership interest

Explanation:

As per Section 704 (d) partner's distributive share of loss is allowed to the extent of her adjusted basis in partnership. As per sec 1.704 - 1(d) loss in excess of basis is disallowed and can be carried forward indefinitely as long as she remains in partnership. She can carry forward until she has positive basis in partnership.

As such option D is correct and other options A, B and C are incorrect.