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Comprehensive Problem 20-81 (LO 20-1, LO 20-2, LO 20-3, LO 20-4, LO 20-5, LO 20-6) (Algo)

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[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 $13,600 and $5,600, respectively, and the partnership did not have any liabilities. During the current year, the partnership reported the following results from operations:

Net sales	$ 717,000
Cost of goods sold	539,000
Operating expenses	202,000
Short-term capital loss	9,000
Tax-exempt interest	9,000
1231 gain	13,000

On the last day of the year, the partnership distributed $5,600 each to Lance and Francesca.

Comprehensive Problem 20-81 Part 1 (Algo)

1. What outside basis do Lance and Francesca have in their partnership interests at the end of the year?
2. How much of their losses are currently not deductible by Lance and Francesca because of the tax-basis limitation?
3. To what extent does the passive activity loss limitation apply in restricting their deductible losses for the year?

(For all the requirements, negative amounts should be entered with a minus sign. Leave no answer blank. Enter zero if applicable.)

Answer is complete but not entirely correct.

	Lance	Francesca
a. Year end basis	$2,500selected answer incorrect	$0selected answer correct
b. Loss limited by tax basis	$0selected answer correct	$9,000selected answer incorrect
c. Loss limited by passive activity	$(12,000)selected answer correct	$0selected answer correct