In the current year, Bill Parker (54 Oak Drive, St.Paul, MN 55162) is considerin
ID: 2458302 • Letter: I
Question
In the current year, Bill Parker (54 Oak Drive, St.Paul, MN 55162) is considering making an investment of $60,000 inBest Choice Partnership The prospectus provided by Bill’sbroker indicates that the partnership investment is not a passiveactivity and that Bill’s share of the entity’s loss inthe current year will likely be $40,000, while his share of thepartnership loss next year will probably be $25,000. Write a letterto Bill in which you indicate how the losses would be treated fortax purposes in the current and next years.
Explanation / Answer
given then these are no passive losses, however Bill should beinformed that he is limited to at risk losses. : Losses from a business operation are limited to theamount of money you can actually lose in thebusiness. You are subject to at-risk rules if you are filingSchedules C, E, or F. For example, if you are a member of apartnership and are reporting a loss from the Partnership K-1 onyour Schedule E, your loss is limited to the amount of money youcan actually lose in the partnership. Bill should also beinformed that his liability in a general partnership isunlimited. : Loss would be $40000 in current year but limited to $20000 inthe following year....Any losses in future years would amount toZero deductions.