Question

On December 31, 20X1, John owns a 50% partnership interest in which he has a $300,000 tax basis and no amount at risk. The calendar year partnership has one activity. In earlier years, John deducted ordinary losses of $25,000 from the partnership for which he was fully at risk. During 20X2, John receives a $50,000 distribution from the partnership and is allocated a tax loss of $100,000.

How much should be reported as income in 20X2? ____________________

How much should be reported as loss in 20X2? ____________________

How much loss is suspended and carried forward? ____________________

Answer 1

Answer :

a)Amount to be reported as income in 20X2 =$50,000

(Being the John receives $50,000 distribution from partnership during 20X2)

b)Amount to be reported as loss in 20X2 =$100,000

( Being tax loss allocated in 20X2)

c)Amount of total partnership interest=(opening interest + distribution from partnership - amount already deducted as losses) = ($300,000+$50,000-$25000) =$325,000.

Tax payer can deduct the tax loss to the extent of Total Partnership interest and any remaining loss can be carried forward until he has positive partnership interest.

John has tax loss of $ 100,000. Hence he can deduct the entire $ 100,000 as it is with in the limit of $325,000.

Amount to be suspended and carried forward will be Nil.

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