Question

Jasmine Gregory is a 20% member in Sparrow Properties LLC, which is a lessor of residential rental property. Her share of the LLC's losses for the current year is $100,000. Immediately before considering the deductibility of this loss, Jasmine's capital account (which, in this case, corresponds to her basis excluding liabilities) reflected a balance of $50,000. Jasmine has personally guaranteed a $10,000 debt of the LLC that is allocated to her as a recourse debt. Her share of the LLC's nonrecourse debt is $30,000.
This debt cannot be treated as qualified nonrecourse debt. Jasmine spends several hundred hours a year working for Sparrow Properties.
Jasmine also is a managing member of Starling Rentals LLC, which is engaged in long-term (more than 30 days) equipment rental activities. (This is considered a passive activity.) Jasmine's share of Starling's income is $36,000.
Jasmine's modified adjusted gross income before considering the LLCs' activities is $300,000. Ignore the $25,000 "active participation" rental real estate deduction.
Determine how much of Sparrow's $100,000 loss Jasmine can deduct on her current calendar year return. Draft a memo for the client's tax file describing the loss limitations. In the memo, identify the Code sections under which losses are suspended.


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  • CreatedMay 25, 2015
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