At the beginning of 2022, Ms. Pope purchased a 20 percent interest in PPY Partnership for $20,000. Ms. Pope’s Schedule K-1 reported that her share of PPY’s debt at year-end was $12,000, and her share of ordinary loss was $28,000. On January 1, 2023, Ms. Pope sold her interest to another partner for $2,000 cash.

a. How much of her share of PPY’s loss can Ms. Pope deduct on her 2022 return?

b. Compute Ms. Pope’s recognized gain on sale of her PPY interest.

c. How would your answers to parts (a) and (b) change if PPY were an S corporation instead of a partnership?

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Schedule K-1 (Form 1065) Department of the Treasury Internal Revenue Service 1 / 2021 ending Partner's Share of Income, Deductions, Credits, etc. Faux Antiques 1012 East Main Part I Information About the Partnership A Partnership's employer identification number 81-1138419 B Partnership's name, address, city, state, and ZIP code E Widener, NY 42714 C IRS center where partnership filed retum Cincinnati I D Check if this is a publicly traded partnership (PTP) Part II Information About the Partner beginning Tom G. Owen 330 Aspen Lane Partner's SSN or TIN (Do not use TIN of a disregarded entity. See instructions.) 498-45-9058 F Name, address, city, state, and ZIP code for partner entered in E. See instructions. Widener, NY 42714 GX General partner or LLC member-manager H1 H2 11 12 K M N ► See back of form and separate instructions. For calendar year 2021, or tax year / 1 TIN Name What type of entity is this partner? Domestic partner Foreign partner If the partner is a disregarded entity (DE), enter the partner's: 2021 60 % 60 % 60 % $ If this partner is a retirement plan (IRA/SEP/Keogh/etc.), check here ► Partner's share of profit, loss, and capital (see instructions): Beginning Limited partner or other LLC member Profit Loss Capital Check if decrease is due to sale or exchange of partnership interest Partner's share of liabilities: Beginning . Beginning capital account Capital contributed during the year $ 8 Current year net income (loss). $ Other increase (decrease) (attach explanation) S Withdrawals and distributions $( $ Ending capital account . Partner's Capital Account Analysis $ Y Ending Nonrecourse Qualified nonrecourse financing $ 13,612 $ 21,050 $ Recourse $ Check this box if Item K includes liability amounts from lower tier partnerships . $ $ Ending 60 % 60 % 60 % ➤ 0 13,612 21,050 25,000 184,374 150,000) 59,374 Did the partner contribute property with a built-in gain (loss)? Yes No If "Yes," attach statement. See instructions. Partner's Share of Net Unrecognized Section 704(c) Gain or (Loss) Beginning Ending For Paperwork Reduction Act Notice, see the Instructions for Form 1065. Final K-1 Amended K-1 Part III Partner's Share of Current Year Income, Deductions, Credits, and Other Items 1 2 3 4a 4b 4c 5 6b 7 8 6a Ordinary dividends Ordinary business income (loss) 182,940 Net rental real estate income (loss) 11 Other net rental income (loss) 6c Dividend equivalents 12 Guaranteed payments for services 13 Guaranteed payments for capital Total guaranteed payments Interest income For IRS Use Only Qualified dividends Royalties 9a Net long-term capital gain (loss) 2,226 9b Collectibles (28%) gain (loss) 9c Unrecaptured section 1250 gain 10 Net section 1231 gain (loss) Net short-term capital gain (loss) 1,008 Other income (loss) 1,008 Section 179 deduction Other deductions www.irs.gov/Form1065 14 Self-employment earnings (loss) 182,940 15 Credits 16 17 18 651121 OMB No. 1545-0123 Schedule K-3 is attached if checked Alternative minimum tax (AMT) items 19 Distributions A A Tax-exempt income and nondeductible expenses 20 Other information. 22 More More than one activity for at-risk purposes 23 More than one activity for passive activity purposes *See attached statement for additional information. 150,000 Inv Inc 1,008 21 Foreign taxes paid or accrued Cat. No. 11394R Schedule K-1 (Form 1065) 2021