Hardy's basis in his partnership interest was $5,000 at the beginning of the tax year. For the year, his share of the partnership's loss was $6,000, and he also received a distribution of $3,000. Hardy can deduct a $2,000 loss, and the remaining $4,000 loss is suspended until a year in which he has adequate basis.

Question

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Hardy can only deduct losses up to his basis in the partnership. His basis is reduced by the distribution first, leaving $2,000, which is the amount of loss he can deduct. The remaining $4,000 loss is suspended until he has sufficient basis.

Hardy's Basis in His Partnership Interest Was $5,000 at the Beginning