Juan Diego began the year with a tax basis in his partnership interest of $40,00
ID: 2600364 • Letter: J
Question
Juan Diego began the year with a tax basis in his partnership interest of $40,000. During the year, he was allocated $26,000 of partnership ordinary business income, $100,000 of §1231 losses, and $100,000 of short-term capital losses and received a cash distribution of $40,000. (Do not round intermediate calculations.)
a. What items related to these allocations does Juan Diego actually report on his tax return for the year? [Hint: See Reg. §1.704-1(d)(2) and Rev. Rul. 66-94.]
b. If any deductions or losses are limited, what are the carryover amounts and what is their character? [Hint: See Reg. §1.704-1(d).]
Explanation / Answer
Solution:-
a.
According to Rev. Rul. 66-94,1966-1 CB 166 Juan Diego should increase his basis first by his $26,000 share of ordinary business income and then reduce it by his $40,000 cash distribution. At this point, his remaining basis of $26,000 will be reduced to zero by the $100,000 Section 1231 losses and $100,000 short-term capital losses allocated to him. Reg. §1.704-1(d)(2) describes how Juan Diego’s $26,000 tax basis before considering the loss allocations should be allocated to the two types of losses. The table below illustrates the required calculations:
$ 13,000
[26,000 * (100,000 / 200,000)]
$ 13,000
[26,000 * (100,000 / 200,000)]
b.
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Original loss (1) Amount deducted currently (2) (1) - (2) Loss carryover Section 1231 losses 100,000$ 13,000
[26,000 * (100,000 / 200,000)]
$ 87,000 Short-term capital loss 100,000$ 13,000
[26,000 * (100,000 / 200,000)]
$ 87,000Related Questions
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