Perry is a partner in a calendar year partnership. His Schedule K-1 for the current tax year showed the following: $$\begin{array} { l r }
\text { Ordinary business loss } & \$ ( 20,000 ) \
\text { Short-term capital gain } & 2,100 \
\text { Dividend income } & \mathbf { 1 , 6 0 0 } \
\text { Cash distribution } & \mathbf { 5 , 8 0 0 }
\end{array}$$ 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?

Question

Perry is a partner in a calendar year partnership. His Schedule K-1 for the current tax year showed the following: $$\begin{array} { l r } 
\text { Ordinary business loss } & \$ ( 20,000 ) \
\text { Short-term capital gain } & 2,100 \
\text { Dividend income } & \mathbf { 1 , 6 0 0 } \
\text { Cash distribution } & \mathbf { 5 , 8 0 0 }
\end{array}$$ 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?

Quizplus · Accepted Answer

Perry's tax basis at the end of the year can be calculated as follows:

Tax basis at beginning of the year: $15,400
+ Share of ordinary loss: $20,000
- Cash distribution: $5,800
= Tax basis at end of the year: $29,600

Since his tax basis at the end of the year is positive, Perry can deduct the entire amount of the ordinary loss on his Form 1040. Therefore, Perry may deduct $20,000 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