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Old 08-29-2018, 05:54 PM
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Partnerships

Can you explain in detail the answers to this question, please?

Wayne is one of two general partners in ZMZ Partnership. They share equally in income and losses. At the beginning of the current tax year, Wayne's adjusted basis in ZMZ is 6,250. He did not contribute or withdraw funds during the tax year and did not increase his share of partnership labilities. ZMZ has an ordinary business loss of 14,000 during the current tax year, nd Wayne has 10,000 taxable income from other unrelated sources.

1: How much (if any) of the ZMZ loss can Wayne deduct on his personal tax return for the current tax year?
2: What is Wayne's adjusted basis in ZMZ Partnership at the end of the current tax year?



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Old 08-30-2018, 02:09 AM
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1: How much (if any) of the ZMZ loss can Wayne deduct on his personal tax return for the current tax year? ==========>>A partner's distributive share of partnership loss is allowed only to the extent of the adjusted basis of the partner's partnership interest.in this case $6250. The adjusted basis is figured at the end of the partnership's tax year in which the loss occurred, before taking the loss into account. Any loss more than the partner's adjusted basis is not deductible for that year. However, any loss not allowed for this reason will be allowed as a deduction (up to the partner's basis) at the end of any succeeding year in which the partner increases his or her basis to more than zero.



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2: What is Wayne's adjusted basis in ZMZ Partnership at the end of the current tax year?=======> I do not know; A partner's tax basis cannot go below zero I mean, negative;. Any amount in excess of zero results in a taxable gain.so, If your sch K-1of 1065 indicates that it is tax basis and this amount is negative, then you have a capital gain to the extent of this negative amount.
as you can see,many times, a partner's basis for his / her partnership interest ,so called outside basis, does not equal the partnership's basis for its assets , inside basis. This inequality may occur , say, as a result of the acquisition of a partnership interest through purchase or inheritance. For example, say, a partnership interest is acquired from an existing partner, the purchasing partner will take a cost basis in the partnership interest, which may be higher or lower than the basis of the partnership interest in the hands of the selling partner. As a result, the purchasing partner's basis in the partnership interest will differ from his/ her share of the basis of the partnership's assets. To equalize the inside and outside bases, the partnership may elect to adjust the basis of its assets. Say, partnerA owns a 1/3 interest in the ABC partnership that has assets with a FMV of $30k and an inside basis of $24k. Further assume that A has an outside basis of $8k which is equal to his share of inside basis (1/3 of $24k). If A sells his interest to B for its value $10k, B will now have an outside basis of $10k, ,what he paid for it but his share of inside basis will still remain at $8K ,1/3 of $24K. As a result of the operations, the basis that a partner has in his /her partnership interest will fluctuate throughout the term of the partner's ownership. The basis of a partner's interest in the partnership will either increase or decrease when, say, partner's basis is decreased by the partner's share of partnership losses as in your case.



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