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27 March, 21:11

At the beginning of the tax year, Zach's basis for his partnership interest and his amount at risk in the partnership was $30,000. His share of partnership items for the year consisted of tax-exempt interest income of $2,000 and an ordinary loss of $44,000. He also received a distribution from the partnership of $20,000 cash during the year. For the tax year, Zach will report:

A. A nontaxable distribution of $20,000, an ordinary loss of $10,000, and a suspended loss carryforward of $34,000.

B. An ordinary loss of $32,000, a suspended loss carryforward of $12,000, and a taxable distribution of $20,000.

C. A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000.

D. An ordinary loss of $44,000 and a nontaxable distribution of $20,000

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  1. 28 March, 00:39
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    c. A nontaxable distribution of $20,000, an ordinary loss of $12,000, and a suspended loss carryforward of $32,000.

    Explanation:

    To calculate the Amounts Zach will report for the tax year, the following steps are taken

    Step 1: Calculate the Reduction in Zach's basis for his partership Interest and allocate the new amount to reduce Zach's ordinary Loss

    Beginning Basis of Partnership Interest = $30,000

    Tax-exempt interest income = $2,000

    Partnership Distribution for the Year = $20,000

    Reduction in Partnership Interest Basis=

    Beginning Basis of Partnership Interest + Tax-exempt interest income - Cash Distribution for the year

    = $30,000 + $2,000 - $20,000

    = $12,000

    The use of the calculated Partnership Interest Basis ($12,000) is to allocated to ordinary loss to reduce Zach's ordinary loss of $44,000 while the balance is treated as suspended loss carryforward.

    Step 2: Calculate the suspended loss carryforward as a result of the reduction in Ordinary Loss

    Initial Ordinary Loss = $44,000

    New Partnership Interest Basis / Allocated value of the Ordinary Loss

    = $12,000

    Carryforward Suspended Loss = Initial Ordinary Loss - New Partnership Interest Basis / Calculated Ordinary Loss

    = $44,000 - $12,000

    = $32,000

    In Summary, Zach will report:

    Non taxable distribution of $20,000 Ordinary loss of $12,000 Suspended Loss Carryforward of $32,000
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