Problem: Module $7$ Textbook Problem $7$

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 $1,$ Ginger, an individual, paid $$25,000$ for $6$ percent of the stock in Root Corp., an S corporation. In November Year $1,$

he loaned $$9,000$ to Root Corp. in return for a promissory note. Root Corp. generated a $$700,000$ operating loss in Year $1.$ Root

Corp. generated $$418,000$ ordinary business income in Year $2.$

Required:

a$.$ How much of Ginger's share of this income is included in his Year $2$ taxable income?

b$.$ Compute Ginger's basis in his Root Corp. stock and his Root Corp. note at the end of Year $2.$

c$.$ How would your answers to parts a and b change if Root Corp.$\text{'}$s ordinary business income was only $$230,000?$

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

Req A and $B$

a$.$ How much of Ginger's share of this income is included in his Year $2$ taxable income?

b$.$ Compute Ginger's basis in his Root Corp. stock and his Root Corp. note at the end of Year $2.$