Help answer this Business Income Tax return. Michael invests in Buxus Interests,

Question

Help answer this Business Income Tax return.

Michael invests in Buxus Interests, a partnership. Michael’s capital contribution to the partnership consists of $10,000 cash and equipment with an adjusted basis of $120,000 (fair market value of $150,000) subject to a nonrecourse liability of $60,000.

         a- Calculate the amount that Michael is at-risk in the activity after making the above contribution.

         b- If Michael’s share of the partnership loss in the year after he makes the contribution is $150,000, how much of the loss may be deducted in that year (before considering the limitations on passive losses)? Assume the partnership had no other transactions.

         c- What may Michael do with the nondeductible part of the loss in part b?

Explanation / Answer

a-The amount that Michael is at-risk in the activity after making the above contribution Michael’s capital contribution to the partnership Cash 10000 Equipment(Adjusted Basis) 120000 130000 Amount at -risk in the activity= 130000 b-Partnership Loss that may be deducted in the year = 130000 c- Non-deductible part= 150000-130000= 20000 This 20000 limited by at-risk limitations may be carried over to future years & can be claimed as deductions if he increases his investment, or if income is generated in this activity, or if sold, can be adjusted against gains,if any

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