What factors determines a partners ability to deduct his share of partnership losses?
According to the IRS Partnership Tax Code, a partner’s ability to deduct his or her share of partnership losses are subject to three sets of limitations, which are applied in the following order:
1. Under IRC section 704(d), the loss must not exceed the amount of the partner’s basis in the partnership interest;
2. The loss is subject to the at-risk rules of IRC section 465;
3. The loss is subject to the passive activity rules of IRC section 469.
Furthermore, the tax code specifically states that "the Partners share of partnership Losses that do not meet the requirements for any of the three limitations are suspended at that level."
This means that Tax Regulations provides a carryover of any disallowed loss to the subsequent tax year.