Question

Eve purchases a 20% partnership interest but does not participate in the partnership’s business. Eve owns no other passive investments. Her Section 704(d) basis in the partnership = $80,000. Of this amount, $70,000 is at risk. Eve’s distributive share of the partnership’s loss for the current year =$60,000. Eve can deduct:

a.	$60,000	c.	$70,000
b.	$80,000	d.	$0

Answer 1

Given in Question -

Eve's adjusted tax basis in the partnership under Sec. 704(d) is $80,000

Eve's risk at course is $70,000

Eve's share of loss in the partnership for the current year is $60,000 .

Sec. 704(d) states that a partner’s share of loss is allowable to the extent of the partner’s adjusted tax basis in the partnership at the end of the year in which such loss occurred. Any losses in excess of the tax basis are disallowed and carried forward.

Further, Sec. 465 states that a partner can only deduct losses to the extent of partner risk at course for such loss.

In the given case, Eve's share of loss in the partnership ($60,000) is less than the Eve's adjusted tax basis in the partnership ($80,000) and Eve's risk at course ($70,000).

Hence, Eve can deduct his entire share of the partnership’s loss of $60,000 for the current year.

So, the correct option is a. $ 60,000