Binh has a 50% interest in the Lamonica Partnership with a basis of $10,000 at the end of the year before accounting for his share of the current year’s losses. The partnership suffers ordinary losses of $60,000. Assume that Binh is a material participant in the partnership.
a. How much of the partnership’s losses may Binh deduct? What is Binh’s adjusted basis at the end of the year?
b. Assume that next year, Binh makes additional capital contributions to Lamonica Partnership of $16,000, the partnership incurs $9,000 in additional debt, and the partnership realizes operating income of $2,000. How do these items affect Binh’s adjusted basis?