Clint Noticed That the Schedule K-1 He Just Received from ABC

question 42

Essay

Clint noticed that the Schedule K-1 he just received from ABC Partnership included a $20,000 ordinary business loss allocation. His tax basis in ABC at the beginning of ABC's most recent tax year was $10,000. Comparing the Schedule K-1 he recently received from ABC with the Schedule K-1 he received from ABC last year, Clint noted that his share of ABC partnership debt changed as follows: recourse debt increased from $0 to $2,000, qualified nonrecourse debt increased from $0 to $3,000, and nonrecourse debt increased from $0 to $3,000. Finally, the Schedule K-1 Clint recently received from ABC reflected a $1,000 cash contribution he made to ABC during the year.
Clint is not a material participant in ABC partnership, and he received $10,000 of passive income from another investment during the same year he received the loss allocation from ABC. How much of the $20,000 loss from ABC can Clint deduct 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:

Modified Allen Test

A diagnostic procedure used to evaluate the adequacy of blood flow through the arteries of the hand.

Capillary Patency

The state of being open or unobstructed, specifically referring to the condition where blood capillaries are adequately open for blood flow.

Collateral Circulation

An alternate network of blood vessels that can supply blood to an area if the main vessel is blocked or narrowed.

Palpable Superficial Lymph Nodes

Lymph nodes close to the surface of the body that can be felt or palpated, often indicating infection or disease when swollen.