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 is also 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. The "active participation" rental real estate deduction is not available to Jasmine. Determine how much of Sparrow's $100,000 loss Jasmine can deduct on her current calendar year return. Using the format (1) facts, (2) issues, (3) conclusion, and (4) law and analysis, draft an internal office memo for the client's tax file describing the loss limitations. Identify the Code sections under which losses are suspended.


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  • CreatedSeptember 09, 2015
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