In 2017, Liam invested $100,000 for a 25% interest in a partnership involved in
ID: 2559906 • Letter: I
Question
In 2017, Liam invested $100,000 for a 25% interest in a partnership involved in an activity in which he is a material participant. The partnership reported losses of $340,000 in 2017 and $180,000 in 2018 with Liam’s share being $85,000 in 2017 and $45,000 in 2018. How much of the losses can Liam deduct?
a.
$0 in 2017, $0 in 2018.
b.
$85,000 in 2017, $0 in 2018.
c.
$85,000 in 2017, $15,000 in 2018.
d.
$85,000 in 2017, $45,000 in 2018.
e.
None of the above.
a.
$0 in 2017, $0 in 2018.
b.
$85,000 in 2017, $0 in 2018.
c.
$85,000 in 2017, $15,000 in 2018.
d.
$85,000 in 2017, $45,000 in 2018.
e.
None of the above.
Explanation / Answer
A partner can deduct partnership losses only upto his adjusted basis in the partnership.
So, for 2017; Liam can deduct full loss of $85,000 (since adjusted basis is $100,000)
For year 2018, his adjusted basis = 100,000 - 85,000 (Loss of 2017) = $15,000
So, for 2017; Liam can deduct loss only upto $15,000 (although his share of loss comes out to be $45,000). The remaining loss of 30,000 (being 45,000 minus 30,000) will be available to him in the last year of partnership.
Hence, Option C ($85,000 in 2017, $15,000 in 2018) is the correct answer.