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Correct Answer:* This question has been adapted from the IRS Examinations. $0. Emil's basis in his partnership interest is computed as follows: Adjusted basis of property contributed$3,000Less: Portion of mortgage assumed by other partners which must be treated as a distribution of money to Emil (50% x $80,000)40,000Tentative basis of Emil's partnership interest($10,000)Since Emil's basis in his partnership interest cannot be less than zero, the $10,000 in excess of basis is treated as capital gain to Emil from the sale or exchange of a capital asset.
82. For the tax year 2013 the Hapless Partnership incurred a loss from its operations of $10,000, a short-term capital loss of $4,000 and a long-term capital loss of $2,000. At the beginning of 2013, Herman Horst, a 50 percent partner, had a basis for his partnership interest of $3,000. How much loss deduction may Herman claim for 2013? What is its character? What loss deferrals does he have? What are their characters? Correct Answer:Herman's share of the partnership losses for 2013 is $8,000. However, his loss deduction is limited to his basis in his partnership interest,$3,000. Herman'sCurrentDeductionHerman'sLossDeferredOrdinary 5/8 ($10,000/$16,000) x $3,000$1,875$3,125Short-term 2/8 ($4,000/$16,000) x $3,0007501,250Long-term 1/8 ($2,000/$16,000) x $3,000375625$3,000$5,00083. Abe Alpert has a 20 percent interest in a partnership and he materially participates in the partnership's business. His adjusted basis was $10,000 at the beginning of 2013. During 2013 the partnershipborrowed $160,000 to purchase equipment and pay off an existing note with a balance of $100,000. All of the partners are personally liable for all partnership debts. The partnership sustained a $300,000 loss in2013. What amount can Abe claim as a loss from the partnership on his 2013 individual return? Correct Answer:Abe may claim a $22,000 loss on his 2013 return. He can deduct his lossonly to the extent of the adjusted basis (including his share of the partnership liabilities). Even though his loss is 20 percent of the $300,000 loss ($60,000), he can deduct only $22,000 ($10,000 basis plus$12,000 [20% x ($160,000 - $100,000)] of liabilities). His adjusted basis for the next calendar year is zero, and he has a $38,000 loss carryover.
84. Agnes Aurora gave 50 percent of her business to her son Bobby. The partnership had a profit of $100,000 for the year and capital is a material income producing factor. Agnes performed services worth $25,000 as reasonable compensation and Bobby performed no services. What is the maximum amount of income Bobby can report from the partnership for the year? Correct Answer:Bobby can report a maximum of $37,500 in partnership income. Agnes, as donor of a family partnership interest, must be allocated an amount of partnership income that represents reasonable compensation for the services she rendered to the partnership, i.e., $25,000. The remainder of the income can be divided between Ms. Aurora and Bobby, so the maximum Bobby could receive is half of the remaining $75,000, which is $37,500.