Perry is a partner in a calendar year partnership. His Schedule K-1 for the current tax year showed the following: $\begin{array}{llr}
\text { ordinary business Loss} &\$(20,000)\
\text { short-term capital gain } &2,100\
\text { Dividend income} &1,600\
\text { Cash distrihution } &5,800
\end{array}$
Perry's tax basis in his partnership interest at the beginning of the year was $15,400. How much of the ordinary loss may he deduct on his Form 1040? Assume the excess business loss limitation does not apply.

Question

Perry is a partner in a calendar year partnership. His Schedule K-1 for the current tax year showed the following: $\begin{array}{llr}
  \text { ordinary business Loss} &\$(20,000)\
 \text { short-term capital gain } &2,100\
 \text {  Dividend income} &1,600\
 \text { Cash distrihution  } &5,800
\end{array}$
 Perry's tax basis in his partnership interest at the beginning of the year was $15,400. How much of the ordinary loss may he deduct on his Form 1040? Assume the excess business loss limitation does not apply.

Quizplus · Accepted Answer

Perry's tax basis at the beginning of the year was $15,400. Adding the net increase of $1,900 gives a tax basis of $17,300 at the end of the year. Since the partnership reported an ordinary loss of $3,000 on Perry's Schedule K-1, his share of the loss that he can deduct on his Form 1040 is limited to his tax basis of $17,300. Therefore, he can deduct $3,000 - $17,300 = $13,300 of the ordinary loss on his Form 1040.

Perry Is a Partner in a Calendar Year Partnership Perry's Tax Basis in His Partnership Interest at the Beginning