Fred Has a 45% Profits Interest and 30% Capital Interest

question 61

Essay

Fred has a 45% profits interest and 30% capital interest in the SAP Partnership and his tax basis before considering his share of SAP's current year loss is $11,000. Included in his tax basis is a $2,600 share of recourse debt and $5,300 share of nonrecourse debt. Fred is a limited partner in SAP. He is not involved in any other activities. If SAP has a $15,000 ordinary loss for the year, how much of the loss can be deducted currently, and how much of the loss is suspended because of the tax basis, the at-risk, and the passive activity loss limitations?

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Definitions:

BAT Model

Stands for the Best Alternative to a Negotiated Agreement; a benchmark used in negotiations to determine each party's alternative options if the current negotiations fail.

Lower Level

Pertains to the subordinate or less complex components within a system, organization, or hierarchy.

BAT Model

The Behaviorally Anchored Rating Scale, a method used in performance evaluation to combine qualitative and quantitative measures.

Cash Flows

The sum total of monetary transactions incoming and outgoing in a firm, crucially affecting its short-term financial health.