Before allocations for the current year, Marvin's basis in the MR LLC, in which Marvin is not an active member, is $50,000. His basis includes $10,000 of debt that he guaranteed, and $20,000 of nonrecourse debt that is not qualified nonrecourse financing. Marvin has passive income from other sources of $40,000. The LLC allocates a loss of $60,000 to Marvin. After application of the loss limitation rules, Marvin can deduct $40,000.

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Marvin can only deduct the loss up to his basis in the LLC, which is $50,000. However, the nonrecourse debt that is not qualified nonrecourse financing does not increase his basis for loss deduction purposes. Therefore, his deductible loss is limited to $30,000 ($50,000 basis - $20,000 nonrecourse debt).

Before Allocations for the Current Year, Marvin's Basis in the MR