George is a limited partner in the GLH Partnership. His basis is $40,000 before considering the current year operations and includes a $20,000 recourse debt share and a $10,000 nonrecourse debt share. The nonrecourse debt is not treated as qualified nonrecourse financing. GLH reported a $200,000 loss for the year of which George's 40% share is $80,000. George has passive income of $50,000 from another activity (not eligible for the special real estate deduction). He has no business losses for the year from other sources. How much of the $80,000 GLH loss can George deduct this year?

Question

Quizplus · Accepted Answer

George can deduct $30,000 of the $80,000 loss. His basis is $40,000, which includes his share of recourse and nonrecourse debt. However, since the nonrecourse debt is not qualified, it does not increase his basis for loss deduction purposes. Therefore, his basis for the loss deduction is $30,000 ($20,000 recourse debt share + $10,000 equity). Passive income does not affect the basis calculation for loss deduction.

George Is a Limited Partner in the GLH Partnership