Question

An investor contributes $10,000 to a limited partnership and signs a $40,000 recourse note. In the first year, the investor's distributive share of income is $15,000 and loss is $70,000. The partnership distributed $5,000 of cash during the year. How much loss can be deducted for this year

Answer 1

Answer: The loss carried to the next year is $10,000

Explanation:

the initial investment = $10,000 contribution + $40,000 recourse note= $50,000 initial basis.

The income in the first year = $15,000

Therefore total sum basis = $50,000 initial investment + $15,000 income = $65,000

The cash distributed = $5,000

we deduct the cash distributed from the total sum basis

hence,

remaining basis = $65,000 - $5,000 = $60,000

since the loss = $70,000

therefore,

the remaining loss after the first year = $70,000 - $60,000 = $10,000

so $10,000 will be the unused loss carried to the next year.