Question

Rubio recently invested $20,000 (tax basis) in purchasing a limited partnership interest. His at-risk amount is $15,000. In addition, Rubio’s share of the limited partnership loss for the year is $22,000, his share of income from a different limited partnership is $5,000, and he has $40,000 in wage income and $10,000 in long-term capital gains.
How much of Rubio’s $22,000 loss is allowed considering only the tax basis loss limitations?

Answer 1

Answer:

$2,000

Explanation:

From the question, the initial tax basis of Rubio is $20,000.  

In a partnership, share of profit will increase the initial basis while share of loss will reduce it.  

As the share of Rubio in the limited partnership loss for the year is $22,000, it will make his tax basis to fall to zero because the loss of $22,000 is greater than his tax basis. The amount by which the loss is greater than his tax basis, i.e. $2,000 ($22,000 - $20,000) will be the loss that is allowed considering only the tax basis loss limitations.  

Therefore, $2,000 loss is allowed to be carried over due only to the tax basis loss limitation.