Question

! Required information [The following information applies to the questions displayed below.] The TimpRiders LP has operated a motorcycle dealership for a number of years. Lance is the limited partner, Francesca is the general partner, and they share capital and profits equally. Francesca works full-time managing the partnership. Both the partnership and the partners report on a calendar-year basis. At the start of the current year, Lance and Francesca had bases of $10,000 and $3,000, respectively, and the partnership did not carry any debt. During the current year, the partnership reported the following results from operations: $650,000 $500,000 $160,000 Net sales Cost of goods sold Operating expenses Short-term capital $2,000 loss Tax-exempt interest $1231 gain $ 2,000 $6,000

Answer 1

Answer :

(a).

Tax basis of Francesca = $3000

Less - ordinary loss = $5000($10000/2)

Cash distribution = $3000

Separate income :

Short term loss = ($1000)

Tax exempt interest = $1000

1231 Gains = $3000

Tax Basis = Nill

Basis of Lance = 10000

Less -

Cash distribution =$3000

Separate income :

Short term loss = ($1000)

Tax Exempt interest = $1000

1231 gains =$3000

Basis = $10000

(b). Lance can deduct all of his loss but Francesca can deduct $5000 but due to cash distribution he can deduct only $3000 and $2000 will be suspended.

(c). Passive activity loss limitation would apply to Lance and he cannot deduct these losses for Francesca it won't apply.