Learning Objectives:

$7-6$ Adjust the tax basis in a partnership interest

$7-7$ Apply the basis limitation on the deduction of partnership losses

$7-9$ Identify similarities and differences in the tax treatment of $S$ corporations versus partnerships

At the beginning of Year $1Ms.$ Mushroom, an individual, purchased a $20$ percent interest in Fungi Partnership for $$20,000.$ Ms$.$ Mushroom's Schedule K$-1$ reported that her share of Fungi's debt at year$-$end was $$14,000,$ and her share of ordinary loss was $$30,000.$ On January $1,$ Year $2,$ Ms$.$ Mushroom sold her interest to another partner for $$2,200$ cash.

Required:

a$.$ How much of her share of Fungi's loss can Ms$.$ Mushroom deduct on her Year $1$ tax return?

b$.$ Compute Ms$.$ Mushroom's recognized gain on sale of her Fungi Partnership interest.

c$.$ How would your answers to parts a and $b$ change if Fungi were an $S$ corporation instead of a partnership?

Complete this question by entering your answers in the tabs below.

Required $A$

Required B

Required C

How much of her share of Fungi's loss can Ms$.$ Mushroom deduct on her Year $1$ tax return?

Deduction