Problem: Module $7$ Textbook Problem $6$

Learning Objectives:

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

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

On January $1,$ Year $1,$ Carrot, an individual, paid $$17,100$ for $5$ percent of the stock in Root Corp., an S corporation. In November, he

loaned $$8,400$ to Root Corp. in return for a promissory note. Root Corp. generated a $$740,000$ operating loss in Year $1.$

Required:

a$.$ How much of his share of the loss can Carrot deduct on his Year $1$ return?

b$.$ Compute Carrot's basis in his Root Corp. stock and his Root Corp. note at the end of Year $1.$

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

Required B

How much of his share of the loss can Carrot deduct on his Year $1$ return?

Deduction