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23 April, 04:25

An investor contributes $10,000 to a limited partnership and signs a $40,000 recourse note. In the first year, the investor's distributive share of income is $15,000 and loss is $70,000. The partnership distributed $5,000 of cash during the year. How much loss can be deducted for this year

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  1. 23 April, 07:50
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    Answer: The loss carried to the next year is $10,000

    Explanation:

    the initial investment = $10,000 contribution + $40,000 recourse note = $50,000 initial basis.

    The income in the first year = $15,000

    Therefore total sum basis = $50,000 initial investment + $15,000 income = $65,000

    The cash distributed = $5,000

    we deduct the cash distributed from the total sum basis

    hence,

    remaining basis = $65,000 - $5,000 = $60,000

    since the loss = $70,000

    therefore,

    the remaining loss after the first year = $70,000 - $60,000 = $10,000

    so $10,000 will be the unused loss carried to the next year.
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