Question

Need assitance with below problem. This problem has been posted before and has incorrect answers. Please provide or show the calculations for better understanding.

Rosa contributes $50,000 to FlipCo in exchange for a 10% ownership interest. Rosa materially participates in FlipCo’s business.

FlipCo incurs a loss of $900,000 for the current tax year. Entity liabilities at the end of the year are $700,000. Of this amount, $150,000 is for recourse debt, and $550,000 is for nonrecourse debt.

If an amount is zero, enter "0".

a. Assume that FlipCo is a partnership.

How much of Rosa’s share of the loss can she deduct for the year on her individual tax return?
$

What is Rosa’s basis for her partnership interest at the end of the year?
$

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b. Assume that FlipCo is a C corporation.

How much of Rosa’s share of the loss can she deduct for the year on her individual tax return?
$

What is Rosa’s basis for her stock at the end of the year?
$

Answer 1

Answer-a(i):

Rosa’s share of the loss can she deduct for the year on her individual tax return:

$65,000 (basis 50,000 - 90,000 + recourse 15,000)

Answer-a(ii):

Rosa’s basis for her partnership interest at the end of the year:

$55,000 (basis 50,000 + recourse 15,000 + non-course 55,000 - deductible 65,000)