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.Zach is an active general partner and has no passive income or business losses from other sources.For the tax year, Zach will report:

Question

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Zach's nontaxable distribution of $20,000 does not affect his basis or amount at risk, so his basis remains at $30,000. His share of partnership losses is limited to his basis and amount at risk, which is $30,000, so he can deduct up to $30,000 of his share of the $44,000 ordinary loss. This leaves a suspended loss carryforward of $14,000 ($44,000 - $30,000).

Therefore, Zach will report an ordinary loss of $12,000 ($30,000 - $2,000 tax-exempt interest income), which is less than his $20,000 distribution, making the distribution nontaxable. He will also report a suspended loss carryforward of $32,000 ($14,000 from this year plus $18,000 from the previous year).

At the Beginning of the Tax Year, Zach's Basis for His