Question

For the tax year, LMN partnership reported $66,500 ordinary loss and $28,500 increase in recourse liabilities...

For the tax year, LMN partnership reported $66,500 ordinary loss and $28,500 increase in recourse liabilities for which the partners are liable. Natalie, a 50% owner, had an adjusted basis of $22,500 at the beginning of the year. What is Natalie’s allowable loss and her adjusted basis in LMN at the end of the year?

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Allowable loss: $19,000. Adjusted basis: $3,500.
Allowable loss: $22,500. Adjusted basis: $0.
Allowable loss: $33,250. Adjusted basis: $0.
Allowable loss: $33,250. Adjusted basis: $3,500.
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Answer #1

In partnership taxation partner allowable loss will be to the extent of the partner's adjusted basis at the end of the year in which loss have occurred.Any loss excess there of is disallowed and carried forward as long as partner remains in partnership.

As per above provision

Natalie share of loss will be $33250 as per 50% owner and having adjusted basis $ 22500 at the beginning of the year so allowable loss will be to the extent of adjusted basis i.e. $22500 and adjusted basis is fully utilized for loss so adjusted basis at the end of year is $0.

Remaining loss of $10750(33250-22500) will be carried forward as long as Natalie remains in partnership.

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