Stan had a basis in his partnership interest at the beginning of last year of $30,000. There was no change in partnership liabilities during the year. His share of the partnership's ordinary loss last year was $40,000 and the partnership had no separately stated items. This year, Stan has a distributive share of ordinary income of $30,000. The taxable income from the partnership reported on Stan's personal income tax return this year (ignoring the at- risk and passive activity loss limitations) is

Question

Quizplus · Accepted Answer

At the beginning of the year, Stan had a basis in his partnership interest of $30,000. He incurred a share of the partnership's loss amounting to $40,000 during the year. Therefore, at the end of the year, Stan's basis in his partnership interest is now $30,000 - $40,000 = -$10,000.

Now, this year Stan has a distributive share of ordinary income of $30,000. Therefore, his basis in his partnership interest at the end of the year will be increased by the income amounting to $30,000. This makes Stan's basis in his partnership interest at the end of this year to be $30,000 - $40,000 + $30,000 = $20,000.

Since there were no separately stated items, Stan's taxable income from the partnership is his distributive share of the ordinary income, which is $30,000. However, since Stan's basis at the end of the year is only $20,000, he has a suspended loss of $10,000 ($30,000 - $20,000). This suspended loss can be carried forward to offset future profits from the partnership.

Stan Had a Basis in His Partnership Interest at the Beginning