Question

Eduardo recently invested $20,000 (tax basis) in purchasing a limited partnership interest. His at-risk amount is $15,000. In addition, Eduardo’s share of the limited partnership loss for the year is $22,000, his share of income from a different limited partnership was $5,000, and he had $40,000 in wage income and $10,000 in long-term capital gains.

a. How much of Eduardo’s $22,000 loss can he deduct considering only the tax basis limitation?

b. How much of the loss from part a. can Eduardo deduct under the at-risk limitations?

c. How much of Eduardo’s $22,000 loss from the limited partnership can he deduct in the

current year considering all limitations?

Answer 1

a Eduardo initial tax basis is $20000 in limited partnership. Eduardo loss $22,000 reduces his tax basis to $0. Because this tax basis loss limitation $20000 remaining $2000 loss will be carry forward by him.

b Eduardo’s initial at risk amount is $15000 in limited partnership. Eduardo’s $22000 loss reduces tax basis to $0 leaving him with balance amount $5000 at- risk carryover.

c After the application of at-risk limitations and tax basis, Eduardo can deduct $15000 of loss. Since Eduardo is a limited partner, $15000 of loss can be considered as passive loss. Therefore Eduardo may deduct this loss of $15,000 in the current year to the extent of his passive income. He may deduct only $5000 of the $15000 loss because Eduardo has only passive income of $5000.