Daniel is a 30 percent general partner in ABC Gum.His basis in his partnership interest at the beginning of the year was $1,000.The partnership had no debt at the beginning of the year.This year,the partnership reported a net loss of $10,000.The partnership also took out a $3,000 recourse loan during the year.How much of the loss may Daniel deduct on his tax return?

Question

Quizplus · Accepted Answer

As a 30 percent general partner, Daniel's share of the partnership loss is $3,000 ($10,000 loss x 30 percent). However, since the partnership took out a $3,000 recourse loan that Daniel is personally liable for, his basis in the partnership has increased to $4,000 ($1,000 beginning basis + $3,000 loan). He can deduct the loss up to his basis, so he can deduct $1,900 ($4,000 basis - $2,100 share of loss already deducted). Therefore, the correct answer is option C.

Daniel Is a 30 Percent General Partner in ABC Gum