Answer:
c. A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000.
Explanation:
To calculate the Amounts Zach will report for the tax year, the following steps are taken
Step 1: Calculate the Reduction in Zach's basis for his partership Interest and allocate the new amount to reduce Zach's ordinary Loss
Beginning Basis of Partnership Interest = $30,000
Tax-exempt interest income= $2,000
Partnership Distribution for the Year = $20,000
Reduction in Partnership Interest Basis=
Beginning Basis of Partnership Interest + Tax-exempt interest income- Cash Distribution for the year
= $30,000 + $2,000 - $20,000
= $12,000
The use of the calculated Partnership Interest Basis ($12,000) is to allocated to ordinary loss to reduce Zach's ordinary loss of $44,000 while the balance is treated as suspended loss carryforward.
Step 2: Calculate the suspended loss carryforward as a result of the reduction in Ordinary Loss
Initial Ordinary Loss = $44,000
New Partnership Interest Basis/ Allocated value of the Ordinary Loss
= $12,000
Carryforward Suspended Loss= Initial Ordinary Loss - New Partnership Interest Basis/ Calculated Ordinary Loss
= $44,000 - $12,000
= $32,000
In Summary, Zach will report:
- Non taxable distribution of $20,000
- Ordinary loss of $12,000
- Suspended Loss Carryforward of $32,000
