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On January 1, X9, Gerald received his 50% profits and capital interest in High Air, LLC...

On January 1, X9, Gerald received his 50% profits and capital interest in High Air, LLC in exchange for $3,500 in cash and real property with a $4,500 tax basis secured by a $3,500 nonrecourse mortgage. High Air reported a $16,500 loss for its X9 calendar year. How much loss can Gerald deduct, and how much loss must he suspend if he only applies the tax basis loss limitation?

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Answer #1
Solution:
Cash $3500
Real Property $4500
Nonrecourse mortgage $3500
Loss reported $16500
Gerald's initial tax basis = Exchange in cash + Real property with tax basis - Nonrecourse mortgage +(50%*$3500)
$3500+$4500-$3500+(50%*$3500)
$6250
Gerald's would be allocated 50% of Loss i.e $16500*50% = $8250
Gerald would deduct currently is limited to his basis, thus gerald could deduct $6250 currently, and the remaining
Loss of $2000 ($8250-$6250) would be suspended and carried forward indefinitely.
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