Alfonso began the year with a tax basis in his partnership interest of $48,000.

Question

Alfonso began the year with a tax basis in his partnership interest of $48,000. His share of partnership debt at the beginning and end of the year consists of $4,000 of recourse debt and $4,000 of nonrecourse debt. During the year, he was allocated $62,000 of partnership ordinary business loss. Alfonso does not materially participate in this partnership and he has $3,000 of passive income from other sources.

a. How much of Alfonso’s loss is limited by his tax basis?

loss limited by his tax basis

Explanation / Answer

a. Because Alfonso’s basis before the loss allocation is $48,000, $14,000 of his $62,000 loss allocation is limited by his tax basis and will carryover to the following year.

b. Of the $48,000 loss not already limited by Alfonso’s tax basis, $4,000 is limited because Alfonso’s at-risk amount is only $44,000 ($48,000 regular tax basis less the $4,000 nonrecourse debt not allowed in calculating the at-risk amount). Thus,$44,000 of loss remains after the tax basis and at-risk limitations, and Alfonso has a $4,000 at-risk carryover.

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