In 2019, Liam invested $100,000 for a 25% interest in a partnership involved in an activity in which he is a material participant.The partnership reported losses of $340,000 in 2019 and $180,000 in 2020 with Liam's share being $85,000 in 2019 and $45,000 in 2020.How much of the losses can Liam deduct?

Question

Quizplus · Accepted Answer

Liam can deduct his share of the partnership's loss to the extent of his basis in the partnership. Initially, he invested $100,000. His share of the loss in 2019 is $85,000, which reduces his basis to $15,000 ($100,000 - $85,000). In 2020, his share of the loss is $45,000, but he can only deduct up to his remaining basis of $15,000. Therefore, Liam can deduct $85,000 in 2019 and $15,000 in 2020.

In 2019, Liam Invested $100,000 for a 25% Interest in a Partnership