On January 1, X9, Gerald received his 50 percent profits and capital interest in High Air, LLC, in exchange for $2,800 in cash and real property with a $3,800 tax basis secured by a $2,800 nonrecourse mortgage. High Air reported a $15,800 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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codiepienagoya codiepienagoya · Answer 1 · 2020-12-08T10:04:47+01:00

Answer:

The answer is "$2,700".

Explanation:

[tex]Cash= \$2,800\\\\ Real\ Property= \$3,800 \\\\ Nonrecourse \ mortgage =\$2,800\\\\ Loss \ reported =\$15,800[/tex]

[tex]\text{Initial tax base for Gerald} =[/tex]

[tex]\text{cash exchange} + \text{real property tax base}-\text{mortgage with no recourse} +(50 \% \times \$2,800)[/tex]

[tex]= \$ 2,800+\$3,800-\$2,800+(50\% \times \$2,800)\\\\ = \$2,800+\$3,800-\$2,800+\$1,400\\\\= \$5,200[/tex]

Gerald's loss will be given [tex]50\%[/tex], i.e. [tex]\$15,800 \times 50\% = \$7,900[/tex]

Gerald will actually only subtract his salary, and therefore Gerald would only deduct $5,200.

Losses of [tex]\$2,700 (\$7,900-\$5,200)[/tex] were suspended but continued indefinitely.