Sandy and Larry each have a 50% interest in SL Partnership.The partnership and the individuals file on a calendar year basis.In 2013,SL Partnership had a $30,000 ordinary loss.Sandy's adjusted basis in her partnership interest on January 1,2013 was $12,000.In 2014,SL Partnership had ordinary income of $20,000.Assuming there were no other adjustments to Sandy's basis in the partnership,what amount of partnership income (loss)would Sandy show on her 2013 and 2014 individual income tax returns?

Question

Quizplus · Accepted Answer

Sandy's share of the partnership loss in 2013 is 50% * $30,000 = $15,000. Since her adjusted basis in her partnership interest was only $12,000, she can deduct the entire loss on her individual tax return.

In 2014, Sandy's share of the partnership income is 50% * $20,000 = $10,000. Her adjusted basis in her partnership interest at the end of 2013 would have been $12,000 (starting basis) - $15,000 (2013 loss) = -$3,000. This negative basis must be restored before any income can be included on her tax return. Since she did not contribute any additional funds to the partnership, her share of the income is limited to the amount that restores her basis to zero. Thus, her income for 2014 is $3,000.

Sandy and Larry Each Have a 50% Interest in SL