Taxation Eric and Denise are partners in ED Partnership. Eric owns a 60% capital

Question

Taxation

Eric and Denise are partners in ED Partnership. Eric owns a 60% capital, profits and loss interest. Denise owns the remaining interest. Both materially participate in the partnership activities. At the beginning of the current year, EDs only liabilities are $50,000 in accounts payable, which remain outstanding at year-end. In August, ED borrowed $120,000 on a nonrecourse basis from Delta Bank. The loan is secured by property with a $230,000 FMV. These are EDs only liabilities at year-end. Basis for the partnership interest at the beginning of the year is $40,000 for Denise and $60,000 for Eric before considering the impact of liabilities and operations. ED has a $200,000 ordinary loss during the current year. How much loss can Eric and Denise recognize?

Please explain steps

Explanation / Answer

Here first of all we shows ordinary loss calculation for same.

$200,000 interest to partners = Denise interest $40,000 + Eric Interest $60,000

So actual loss is $300,000.

Liabilities have no recognition in this case.

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