Question

Sue invested $5,000 in the ABC Limited Partnership and received a 10 percent interest in the partnership. The partnership had $20,000 of qualified nonrecourse debt and $20,000 of debt Sue is not responsible to repay because she is a limited partner. Sue is allocated a 10 percent share of both types of debt, resulting in a tax basis of $9,000 and an at-risk amount of $7,000. During the year, ABC LP generated a ($90,000) loss. How much of Sue's loss is disallowed due to her tax basis or at-risk amount?

• $0; all of her loss is allowed to be deducted.

• $2,000 disallowed because of her at-risk amount.

• $2,000 disallowed because of her tax basis.

• $4,000 disallowed because of her tax basis.

• $4,000 disallowed because of her at-risk amount.

Answer 1

Answer :-

The correct answer is option C - $2,000 disallowed because of her at risk amount.

Explanation :-

Given,

Tax basis = $9,000 and At risk amount = $7,000

Disallowed loss = Tax basis of $9,000 - At- risk amount of, $7,000

Disallowed loss = & 2,000

Thus, the $2,000 disallowed loss because of her at risk amount as in the partnership Sue had $20,000 of qualified nonrecourse debt and $20,000 of debt Sue is not responsible to repay because she is a limited partner.