Question

"An investor contributes $75,000 of cash to a partnership and signs a $50,000 recourse note. During the first year, the investor is allocated partnership income of $50,000, debt service expense of $20,000 consisting of $15,000 of interest and $5,000 of principal amortization, operating expenses of $30,000 and depreciation expense of $25,000. For this tax year, the investor has a net reportable loss of:"

Answer 1

Answer:

$100,000

Explanation:

"An investor contributes $75,000 of cash to a partnership and signs a $50,000 recourse note. During the first year, the investor is allocated partnership income of $50,000, debt service expense of $20,000 consisting of $15,000 of interest and $5,000 of principal amortization, operating expenses of $30,000 and depreciation expense of $25,000.

For this tax year, the investor has a net reportable loss of:" Basis less any Cash distribution''

Basis = Contribution into partnership + Appropriated Profit

Basis = ($75,000 + $50,000) + $50,000 = $175,000

There was no cash distribution during the year hence, the investor can claim a loss of $175,000

Expenses to be deducted (debt service expense of $20,000 + Operating expenses of $30,000 + Depreciation expense of $25,000) = $75,000

Therefore net reportable loss = $175,000 Basis - $75,000 Expenses incurred = $100,000