Question

Andy is a partner in ABCD partnership. He materially participates, and he has a basis in his partnership of $70,000, none of which comes from nonrecourse debt. In the current year, he is allocated $50,000 in operating (ordinary) losses as well as $50,000 in long-term capital loss. How much of the loss is he allowed to deduct, and what is the nature of the deductible losses?

I need rules and regs included

Answer 1

RULES AND REGULATIONS :

• Andy is a partner in ABCD partnership.
• The inside basis is the partnerships tax basis in the individual assets.
• A partner basis the loss can not be reduced below zero.
• The portion of loss will not be deductible, when the loss reduced the partner basis below zero.
• Therefore $50000 of operating loss will reduced from $70000
• Remaining $20000 (out of $70000) will be reduced for LONG TERM CAPITAL LOSS.
• The remaining $30000 LONG TERM CAPITAL LOSS will not be deductible.
• Amount $ 30000 long term capital loss will be carry forwaded.
• If a partner file his own tax return, he can only setoff of $3000 of his TOTAL LONG TERM CAPITAL LOSS in his tax return aganist the ordinary income
• The remaining $27000 (out of $30000) of capital loss will be carry forward indefinitely.