Phyllis owns a 30% interest in the PQR Partnership and has a $20,000 basis in her partnership interest (before adjustments for Phyllis’s share of current year partnership income or loss). During the current year, the PQR Partnership reports a $100,000 ordinary loss and no change in partnership liabilities. Phyllis materially participates in the business in the current year.
a. What amount of the loss can Phyllis deduct in the current year?
b. What is Phyllis’s basis in her partnership interest at the end of the current year?
c. What happens to Phyllis’s unused ordinary loss (if any)?
d. What advice can you give Phyllis about reducing the amount of unused loss (if any) that was not deductible in the current year?