Comprehensive Problem 20-81 (LO 20-1, LO 20-2, LO 20-3, LO 20-4, LO 20-5, LO 20-6) (Algo) [The following information applies to the questions displayed below.]

The TimpRiders LP has operated a motorcycle dealership for a number of years. Lance is the limited partner, Francesca is the general partner, and they share capital and profits equally. Francesca works full time managing the partnership. Both the partnership and the partners report on a calendar-year basis. At the start of the current year, Lance and Francesca had bases of $12,100 and $4,900, respectively, and the partnership did not have any liabilities. During the current year, the partnership reported the following results from operations:

Net sales $ 708,000

Cost of goods sold 531,000

Operating expenses 192,000

Short-term capital loss 3,200

Tax-exempt interest 3,900

1231 gain 7,900

On the last day of the year, the partnership distributed $4,900 each to Lance and Francesca.

Comprehensive Problem 20-81

Part 1 What outside basis do Lance and Francesca have in their partnership interests at the end of the year?

How much of their losses are currently not deductible by Lance and Francesca because of the tax-basis limitation?

To what extent does the passive activity loss limitation apply in restricting their deductible losses for the year?