Question #1

Zelda owns a 60 percent general interest in YZ Partnership. At the beginning of 2021, the adjusted basis in her YZ interest was $95,000. For 2021, YZ generated a $210,000 business loss, earned $14,600 dividend and interest income on its investments, and recognized a $6,200 capital gain. YZ made no distributions to its partners and had no debt. In 2022, YZ generated $7,000 ordinary business income and $18,000 dividend and interest income. The partnership made no distributions. At the end of the year, YZ had $21,000 debt.

A) How much partnership income will Zelda report on her 2022 return? Assume the excess business loss limitation does not apply.

B) Compute Zeldas adjusted basis in her YZ interest at the end of 2022.

Question #2

At the beginning of 2022, Ms. Pope purchased a 15 percent interest in PPY Partnership for $21,000. Ms. Popes Schedule K-1 reported that her share of PPYs debt at year-end was $20,000, and her share of ordinary loss was $37,850. On January 1, 2023, Ms. Pope sold her interest to another partner for $2,800 cash.

Required:

A) How much of her share of PPYs loss can Ms. Pope deduct on her 2022 return?

B) Compute Ms. Popes recognized gain on sale of her PPY interest.

C) How would your answers to parts a and b change if PPY were an S corporation instead of a partnership?