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Tobias is a 50% partner in Solomon LLC, which does not invest in real estate. On January 1, Tobias's adjusted basis for his LLC interest is $170,000, and his at-risk amount is $136,000. His share of losses from Solomon for the current year is $221,000, all of which is passive. Tobias owns another investment that produced $119,000 of passive activity income during the year. (Assume that: Tobias is a single taxpayer, there were no distributions or changes in liabilities during the year, and the Solomon loss is Tobias's only loss for the year from any activity.) How much of Solomon's losses may Tobias deduct on his Form 1040? How much of the loss is suspended and what Code provisions cause the suspensions?

Tobias is a 50% partner in Solomon LLC, which does not invest in real estate. On January 1, Tobias's adjusted basis for his LLC interest is $170,000, and his at-risk amount is $136,000. His share of losses from Solomon for the current year is $221,000, all of which is passive. Tobias owns another investment that produced $119,000 of passive activity income during the year. (Assume that: Tobias is a single taxpayer, there were no distributions or changes in liabilities during the year, and the Solomon loss is Tobias's only loss for the year from any activity.) How much of Solomon's losses may Tobias deduct on his Form 1040? How much of the loss is suspended and what Code provisions cause the suspensions?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Exercise 14-18 (Algorithmic) (LO. 6)** Tobias is a 50% partner in Solomon LLC, which does not invest in real estate. On January 1, Tobias's adjusted basis for his LLC interest is $170,000, and his at-risk amount is $136,000. His share of losses from Solomon for the current year is $221,000, all of which is passive. Tobias owns another investment that produced $119,000 of passive activity income during the year. (Assume that Tobias is a single taxpayer, there were no distributions or changes in liabilities during the year, and the Solomon loss is Tobias's only loss for the year from any activity.) **Problem Statement:** How much of Solomon's losses may Tobias deduct on his Form 1040? How much of the loss is suspended, and what Code provisions cause the suspensions? **Table Explanation:** | Applicable Provision | Deductible Loss | Suspended Loss | |-----------------------|-----------------|----------------| | § 704(d) Overall limitation | $215,000 | $64,500 | | § 465 At-risk limitation | $172,000 | $43,000 | | § 469 Passive loss limitation | $150,500 | $21,500 | The table shows that Tobias's deductible loss is limited by three different provisions, each resulting in different amounts of suspended loss. - **§ 704(d) Overall limitation**: Limits deductible loss to $215,000, suspending $64,500. - **§ 465 At-risk limitation**: Limits deductible loss to $172,000, suspending $43,000. - **§ 469 Passive loss limitation**: Limits deductible loss to $150,500, suspending $21,500. **Conclusion:** Therefore, Tobias can deduct **$537,500** on his return in the current year. **Feedback Section:** Partnership losses flow through to the partners for use on their tax returns. However, the amount and nature of the partner’s deductible losses may be limited.
Transcribed Image Text:**Exercise 14-18 (Algorithmic) (LO. 6)** Tobias is a 50% partner in Solomon LLC, which does not invest in real estate. On January 1, Tobias's adjusted basis for his LLC interest is $170,000, and his at-risk amount is $136,000. His share of losses from Solomon for the current year is $221,000, all of which is passive. Tobias owns another investment that produced $119,000 of passive activity income during the year. (Assume that Tobias is a single taxpayer, there were no distributions or changes in liabilities during the year, and the Solomon loss is Tobias's only loss for the year from any activity.) **Problem Statement:** How much of Solomon's losses may Tobias deduct on his Form 1040? How much of the loss is suspended, and what Code provisions cause the suspensions? **Table Explanation:** | Applicable Provision | Deductible Loss | Suspended Loss | |-----------------------|-----------------|----------------| | § 704(d) Overall limitation | $215,000 | $64,500 | | § 465 At-risk limitation | $172,000 | $43,000 | | § 469 Passive loss limitation | $150,500 | $21,500 | The table shows that Tobias's deductible loss is limited by three different provisions, each resulting in different amounts of suspended loss. - **§ 704(d) Overall limitation**: Limits deductible loss to $215,000, suspending $64,500. - **§ 465 At-risk limitation**: Limits deductible loss to $172,000, suspending $43,000. - **§ 469 Passive loss limitation**: Limits deductible loss to $150,500, suspending $21,500. **Conclusion:** Therefore, Tobias can deduct **$537,500** on his return in the current year. **Feedback Section:** Partnership losses flow through to the partners for use on their tax returns. However, the amount and nature of the partner’s deductible losses may be limited.
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