At the beginning of Year 1 Ms. Mushroom, an individual, purchased a 20 percent interest in Fungi Partnership for $22,000 Mushroom's Schedule K-1 reported that her share of Fungi's debt at year-end was $21,000, and her share of ordinary loss $38,600. On January 1, Year 2, Ms. Mushroom sold her interest to another partner for $2,900 cash. Required: a. How much of her share of Fungi's loss can Ms. Mushroom deduct on her Year 1 tax return? b. Compute Ms. Mushroom's recognized gain on sale of her Fungi Partnership interest. c. How would your answers to parts a and b change if Fungi were an S corporation instead of a partnership?
At the beginning of Year 1 Ms. Mushroom, an individual, purchased a 20 percent interest in Fungi Partnership for $22,000 Mushroom's Schedule K-1 reported that her share of Fungi's debt at year-end was $21,000, and her share of ordinary loss $38,600. On January 1, Year 2, Ms. Mushroom sold her interest to another partner for $2,900 cash. Required: a. How much of her share of Fungi's loss can Ms. Mushroom deduct on her Year 1 tax return? b. Compute Ms. Mushroom's recognized gain on sale of her Fungi Partnership interest. c. How would your answers to parts a and b change if Fungi were an S corporation instead of a partnership?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:7-6 Adjust the tax basis in a partnership interest
• 7-7 Apply the basis limitation on the deduction of partnership losses
7-9 Identify similarities and differences in the tax treatment of S corporations versus partnerships
At the beginning of Year 1 Ms. Mushroom, an individual, purchased a 20 percent interest in Fungi Partnership for $22,000. Ms.
Mushroom's Schedule K-1 reported that her share of Fungi's debt at year-end was $21,000, and her share of ordinary loss was
$38,600. On January 1, Year 2, Ms. Mushroom sold her interest to another partner for $2,900 cash.
Required:
a. How much of her share of Fungi's loss can Ms. Mushroom deduct on her Year 1 tax return?
b. Compute Ms. Mushroom's recognized gain on sale of her Fungi Partnership interest.
c. How would your answers to parts a and b change if Fungi were an S corporation instead of a partnership?
Answer is complete but not entirely correct.
Complete this question by entering your answers in the tabs below.
Required A
Required B Required C
How would your answers to parts a and b change if Fungi were an S corporation instead of a partnership?
Deduction
Amount
$ 22,000
Gain recognized
$
2,200 ×
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