Question

# Alfonso began the year with a tax basis in his partnership interest of \$30,000. His share...

Alfonso began the year with a tax basis in his partnership interest of \$30,000. His share of partnership debt at the beginning and end of the year consists of \$4,000 of recourse debt and \$6,000 of nonrecourse debt. During the year, he was allocated \$40,000 of partnership ordinary business loss. Alfonso does not materially participate in this partnership and he has \$1,000 of passive income from other sources.
a. How much of Alfonso’s loss limited by his tax basis?
b. How much of Alfonso’s loss is limited by his at-risk amount?
c. How much of Alfonso’s loss is limited by the passive activity loss rules?

a). Because Alfonso’s basis before the loss allocation is \$30,000, \$10,000 of his \$40,000 loss allocation is limited by his tax basis and will carryover to the following year.

b). Of the \$30,000 loss not already limited by Alfonso’s tax basis, \$6,000 is limited because Alfonso’s at-risk amount is only \$24,000 (\$30,000 regular tax basis less the \$6,000 nonrecourse debt not allowed in calculating the at-risk amount). Thus, \$24,000 of loss remains after the tax basis and at-risk limitations, and Alfonso has a \$6,000 at-risk carryover.

C). Because Alfonso doesn’t materially participate in the partnership, he may only deduct the \$24,000 loss remaining after the tax basis and at-risk limitations to the extent he has passive income from other sources. Thus, he may deduct \$1,000 of the \$24,000 loss currently and will have a \$23,000 passive activity loss carryover

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