Question

Jack paid $50,000 for a 30 percent interest in a general partnership in which he materially...

Jack paid $50,000 for a 30 percent interest in a general partnership in which he materially participates. The partnership loss for the year is $180,000. How much loss does Jack have? How much can he deduct? If these numbers are different, please explain.

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Answer #1

A) Loss of jack = $180000 × 30% = $54000

B) Jack can deduct = $50000.

Explanation:

Jack's basis in the partnership is $50000. A partner cannot deduct partnership loss of more than his basis in the partnership.

Therefore , jack can deduct a maximum of $50000 in current year and with the additional $4000 of loss suspended to a future year in which his basis becomes positive again. At the end of the first year of operations, jack's basis has been reduced to $0.

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