Question

Jenna began the year with a tax basis of $26,000 in her partnership interest. Her share of partnership debt consists of $8,000 of recourse debt and $15,000 of nonrecourse debt at the beginning of the year and $8,000 of recourse debt and $20,000 of nonrecourse debt at the end of the year. During the year, she was allocated $44,000 of partnership ordinary business loss. Jenna does not materially participate in this partnership, and she has $7,000 of passive income from other sources. A) How much of Jenna’s loss is limited by her tax basis?

B) How much of Jenna’s loss is further limited by her at-risk amount?

C) How much of Jenna’s loss is further limited by the passive activity loss rules?

Answer 1

The amount of loss limited by Jenna’s tax basis is $18,000; the amount of Jenna’s loss that is further limited by her at-risk amount is $15,000; and the amount of Jenna’s loss that is further limited by the passive activity loss rules is $4,000.

Calculations of The Amount of Loss Limited Tax Basis, At-Risk Amount, and Passive Activity Loss Rules

A) The amount of loss limited by Jenna’s tax basis can be calculated as follows:

Amount of loss limited by Jenna’s tax basis = Loss allocated to Jena – Jena’s Tax Basis

Amount of loss limited by Jenna’s tax basis = $44,000 - $26,000

Amount of loss limited by Jenna’s tax basis = $18,000

B) The amount of Jenna’s loss that is further limited by her at-risk amount can be calculated as follows:

Amount of Jenna’s loss that is further limited by her at-risk amount = At-risk limitation - Amount of loss limited by Jenna’s tax basis ……………… (1)

Where:

At-risk limitation = Loss allocated to Jena – At-risk amount limitation = Loss allocated to Jena - (Tax basis – Nonrecourse Debt) = $44,000 - ($26,000 - $15,000) = $33,000

Substituting the relevant values into equation (1), we have:

Amount of Jenna’s loss that is further limited by her at-risk amount = $33,000 - $18,000 = $15,000

C) The amount of Jenna’s loss that is further limited by the passive activity loss rules can be calculated as follows:

Amount of Jenna’s loss that is further limited by the passive activity loss rules = At-risk amount limitation - Passive income = Tax basis – Nonrecourse Debt) – Passive income = ($26,000 - $15,000) - $7,000 = $4,000

Learn more on tax basis at: https://brainly.com/question/15914622.