Question

The Brady Partnership had an ordinary operating loss of $400,000 for the current year. Lonnie has...

The Brady Partnership had an ordinary operating loss of $400,000 for the current year. Lonnie has a 30% interest in the partnership, and he materially participates in the partnership's business. At the beginning of the year, Lonnie's adjusted basis in the partnership was $50,000. During the year, the partnership borrowed $100,000, which was the only outstanding debt at year end. Both partners are personally liable for the partnership's debt, and there are no special agreements. What amount can Lonnie claim as a loss on his current-year individual income tax return?

a

$50,000
b

$120,000
c

$80,000
d

$150,000
Business   Accounting   
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Answer #1

Lonnie has 30% interest in the partnership. He participates materially in the business. Hence, he can be considered as a General Partner. For income tax purpose, he can claim a loss in proportion to his share in the partnership. Since he owns 30% interest, his can claim 30% * 400,000= $120,000 as a loss in the income tax return.

Please note that, being a General Partner, he is fully liable for the outstanding debt of the company. The personal liability will depend on the nature and structure of the partnership. However, debt is the financing component of the business and cannot be claimed as a loss.

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