On the first day of the current tax year,Melanie's basis in her partnership interest was $85,000.Her Schedule K-1 from the partnership reflected the following items for the current year: share of partnership ordinary loss,$95,000;interest income from money market accounts,$6,000.On her personal tax return,Melanie will report a loss from the partnership of $91,000,and interest income of $6,000.

Question

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Melanie's basis in her partnership interest decreased by the share of partnership ordinary loss, which was $95,000. As her basis was only $85,000 to begin with, she has a basis deficit of $10,000. Therefore, she can only deduct $85,000 of the partnership loss on her personal tax return, resulting in a loss of $91,000 ($85,000 deducted from $95,000). The interest income of $6,000 is reported separately and does not affect the partnership loss deduction.

On the First Day of the Current Tax Year,Melanie's Basis