At the beginning of the tax year,Zach's basis for his partnership interest and his amount at risk in the partnership was $30,000.His share of partnership items for the year consisted of tax-exempt interest income of $2,000 and an ordinary loss of $44,000.He also received a distribution from the partnership of $20,000 cash during the year.For the tax year,Zach will report:
A)A nontaxable distribution of $20,000, an ordinary loss of $10,000, and a suspended loss carryforward of $34,000.
B)An ordinary loss of $32,000, a suspended loss carryforward of $12,000, and a taxable distribution of $20,000.
C)A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000.
D)An ordinary loss of $44,000 and a nontaxable distribution of $20,000.

Question

Quizplus · Accepted Answer

Zach's basis at the end of the year can be calculated as:
Beginning basis: $30,000
Add: share of tax-exempt interest income: $2,000
Less: share of ordinary loss: ($44,000)
Less: cash distribution: ($20,000)
Total basis at the end of the year: $12,000

Since his basis has decreased below zero, he is at risk for only $12,000. Therefore, his suspended loss carryforward is calculated as:
Suspended loss carryforward: ($44,000 - $12,000) = ($32,000)

The distribution of $20,000 is nontaxable because it doesn't exceed Zach's basis at the end of the year. Therefore, the correct answer is C.

At the Beginning of the Tax Year,Zach's Basis for His