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On January 1, X9, Gerald received his 50 percent profits and capital interest in High Air, LLC, in exchange for $3,800 in cash and real property with a $4,800 tax basis secured by a $3,800 nonrecourse mortgage. High Air reported a $16,800 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

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Answer:

  • Loss deducted : $6,700
  • Loss suspended: $1,700

Explanation:

First find his initial basis:

= Cash + Real property - Nonrecourse mortgage + (Nonrecourse mortgage * 50%)

= 3,800 + 4,800 - 3,800 + (3,800 * 50%)

= $6,700

Loss attributable to Gerald:

= 16,800 * 50%

= $‭8,400

Loss deductible is the initial basis if the loss is more than the basis.

Loss suspended = Loss attributable to Gerald - Initial basis

= 8,400 - 6,700

= $1,700

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