[Anonymous]

Mom and Pop Partnership had the following results during the taxable year:

Income from operations

$100,000

loss

Capital gain from sale of land

25,000

Charitable contributions

10,000

Junior, a 50% partner, had an adjusted basis of $40,000 at December 31, without regard to the current year income or loss items. In preparing his individual income tax return, Junior should report which of the following amounts?

ANSWER:

1.Ordinary Loss $47,500

2.Capital Gain $12,500

3.Charitable Contributions $5,000

The deduction of the ordinary loss is limited to Junior’s basis and any at risk amounts. Junior’s basis is calculated as $40,000 + $12,500 capital gain – $5,000 charitable contributions = $47,500; thus the ordinary loss deducted on his return would be limited to $47,500.

My question is: How come the loss is not included in the Basis calculation? I thought that the BASE formula included subtracting % share of ALL Losses.

I’m confused… as Becker says partners can take a loss up to his/her basis..but don’t we use the loss to compute our basis? Which one do we calculate first?!

Please help!

[leglock]

i recall working this exact problem and having a similar question to you. It seems that you only factor in the ordinary gain/ loss on basis after you have accounted for all the other separately stated items. Becker never stated this I don't believe, but I know there is another question you will encounter, possibly in a simulation in which you need to apply the same rule.

so if you save the ordinary loss for last, you will add in the 12,500 gain to your basis and subtract 5000 for charitable contribution at which point your basis will be 47,500. Therefore, you can deduct at most 47,500 of any loss you have. You had 50,000 of ord loss so you can take 47,500 of the ord loss and must wait til you have a basis increase before you can deduct the remaining 2500.

[Anonymous]

@leglock,

thanks for your explanation.

[Author]

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