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12 June, 17:10

On January 1, X9, Gerald received his 50% profits and capital interest in High Air, LLC in exchange for $2,000 in cash and real property with a $3,000 tax basis secured by a $2,000 nonrecourse mortgage. High Air reported a $15,000 loss for its X9 calendar year. How much loss can Gerald deduct, and how much loss must he suspend if he only applies the tax basis loss limitation? A. $0, $4,000 B. $0, $7,500 C. $0, $15,000 D. $4,000, $0 E. None of the above

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  1. 12 June, 20:35
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    option (E) None of the above

    Explanation:

    Data provided in the question:

    Cash = $2000

    Real Property = $3,000

    Nonrecourse mortgage = $2,000

    Loss reported = $15,000

    Now,

    Gerald's initial tax basis

    = Exchange in cash + Real property with tax basis - Nonrecourse mortgage + (50% of $2000)

    = $2,000 + $3,000 - $2,000 + 1,000

    = $4,000

    and,

    Gerald's would be allocated 50% of Loss

    = 50% of $15,000

    = $7,500

    Thus,

    Gerald deduction currently is limited to his basis

    i. e

    Gerald can deduct $4,000

    and the remaining amount

    i. e Loss of $3,500 ($7,500 - $4,000) would be suspended and carried forward indefinitely.

    Hence,

    the answer is option (E) None of the above
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