Keith has a one-half interest in the KL Partnership. His basis in the partnership interest at the end of the current year (before deducting his share of partnership losses) is $40,000. His share of the partnership’s ordinary loss in the current year is $180,000. Next year, Keith makes a $60,000 additional capital contribution, and the partnership’s ordinary income is $100,000. Assume that no change occurs in Keith’s partnership interest as a result of the capital contribution and that he materially participates in the business. Partnership liabilities do not change.
a. How much ordinary loss can Keith deduct in the current year?
b. What is Keith’s basis in his partnership interest at the end of the current year?
c. How much ordinary income or loss does Keith report next year?
d. What is Keith’s basis in his partnership interest at the end of next year?
e. How much loss can Keith use in future years? What has to happen to enable him to use the loss?