I:17-42 Formation of a Partnership and Loss Limitation. Dan, who is active in the management of the partnership, contributes $10,000 in cash to the newly formed DEF Partnership for a 10% interest in the partnership. The partners transfer no liabilities to the partnership.

During the partnership’s first year, DEF borrows $75,000 from a bank and is liable for accounts payable amounting to $180,000 at the end of the current year. The DEF Partnership incurs a $400,000 ordinary loss during the current year.

a. How much of the ordinary loss may Dan deduct on his individual tax return?

b. What is Dan’s basis in his partnership interest at the end of the current year?

c. How much of the loss (if any) carries over to future years?