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At the beginning of the tax year, Zach’s basis for his partnership interest and his amount at risk in the partnership was $30,000. His share of partnership items for the year consisted of tax-exempt interest income of $2,000 and an ordinary loss of $44,000. He also received a distribution from the partnership of $20,000 cash during the year. For the tax year, Zach will report:

A. A nontaxable distribution of $20,000, an ordinary loss of $10,000, and a suspended loss carryforward of $34,000.
B. An ordinary loss of $32,000, a suspended loss carryforward of $12,000, and a taxable distribution of $20,000.
C.A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000.
D. An ordinary loss of $44,000 and a nontaxable distribution of $20,000

Respuesta :

Answer:

c. A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000.

Explanation:

To calculate the Amounts Zach will report for the tax year, the following steps are taken

Step 1: Calculate the Reduction in Zach's basis for his partership Interest and allocate the new amount to reduce Zach's ordinary Loss

Beginning Basis of Partnership Interest = $30,000

Tax-exempt interest income= $2,000

Partnership Distribution for the Year = $20,000

Reduction in Partnership Interest Basis=

Beginning Basis of Partnership Interest + Tax-exempt interest income- Cash Distribution for the year

= $30,000 + $2,000 - $20,000

= $12,000

The use of the calculated Partnership Interest Basis ($12,000) is to allocated to ordinary loss to reduce Zach's ordinary loss of $44,000 while the balance is treated as suspended loss carryforward.

Step 2: Calculate the suspended loss carryforward as a result of the reduction in Ordinary Loss

Initial Ordinary Loss = $44,000

New Partnership Interest Basis/ Allocated value of the Ordinary Loss

= $12,000

Carryforward Suspended Loss= Initial Ordinary Loss - New Partnership Interest Basis/ Calculated Ordinary Loss

= $44,000 - $12,000

= $32,000

In Summary, Zach will report:

  • Non taxable distribution of $20,000
  • Ordinary loss of $12,000
  • Suspended Loss Carryforward of $32,000

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