At-Risk Loss Limitation: The KC Partnership is a general partnership that manufa

Question

At-Risk Loss Limitation: The KC Partnership is a general partnership that manufactures widgets. The partnership uses a calendar year as its tax year and has two equal partners, Kerry and City Corporation, a widely held corporation. On January 1 of the current year, Kerry and City Corporation each has a 200,000 basis in the partnership interest. Operations during the year produce the following results:

Orindary Loss: 900,000. Long term Capital Loss: 100,000. Short Term Capital Gain: 300,000

The only change in KC's liabilities during the year is KC's borrowing 100,000 as a nonrecourse loan (not qualified real estate financing) that remains outstanding at year end.

A) What is each partner's deductible loss from the partnerships activities before any passive loss limitation?

B) What is each partner's basis in the partnership interest after the year's operations?

C) How owuld your answers in Part a and b change if the KC Partnership's business were totally in real estate but not a rental activity? Assume the loan is qualified real estate financing.

Explanation / Answer

a) The deductible loss is ordinary loss and long term loss

b) basis are the same

c)

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