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2. A number of years ago, Kay acquired an interest in a partnership in which she...

2. A number of years ago, Kay acquired an interest in a partnership in which she is not a material participant. Kay’s basis in her partnership interest at the beginning of 2-17 is $40,000. Kay’s share of partnership loss is $35,000 in 2017, while her share of the partnership income is $15,000 in 2018. How much may Kay deduct in 2017 and 2018, assuming that she owns no other passive income.

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Losses are adjusted or deducted against Profits of Kay as and when Kay makes profit during a year.

Accordingly, Kay has made only a loss in 2015 and she has no profits during that year to adjust those loses against.

Hence, Kay cannot deduct any amount of the passive loss during the year 2017. Deduction in 2017 = $ 0

However, in the year 2018 , Kay has an income of $ 15000 and Kay can adjust the losses of previous year against this income to the extent of income available. Therefore, Deduction in 2018 = $ 15000 .

After deducting the passive loss. the balance $ 20000 ( $ 35000 - $ 15000 ) will be carried forward to the year 2019.

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