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 $10,000 and $3,000, respectively, and the partnership did not carry any debt. During the current year, the partnership reported the following results from operations:

Net sales $650,000

Cost of goods sold $500,000

Operating expenses$160,000

Short-term capital loss$2,000

Tax-exempt interest $2,000

1231 gain $6,000

On the last day of the year, the partnership distributed $3,000 each to Lance and Francesca.

Question: Using the information provided, fill out the Schedule K-1 for Lance & Francesca.

K J Comprehensive Problem 20-81 Part 1 a. What outside basis do Lance and Francesca have in their partnership interests at the end of the year? b. How much of their losses are currently not deductible by Lance and Francesca because of the tax-basis limitation? c. 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.) eluswer is complete and correct. a. Yearend basis $ 5,000 o $ 0 o b. Loss limited by tax basis 5 0 o 5 {2,000} o c. Loss limited by passive activity 5 (5,000) 0 5 0 o Schedule K-1 (Form 1065) Department of the Treasury Internal Revenue Service 218 For calendar year 2018, or tax year [251116 OMB No. 154570123 Final K1 Amended K1 Ordinary business in come (loss) beginning I f 2018 Partner's Share of Income, Deductions, Credits, etc. ending I / >See back of form and separate instructions. Partnership's employer identification number Partnership's name, address, City, state, and ZIP code Net rental real estate income (loss) Other net rental income (loss) Foreign transactions Guaranteed payments Interest income Ordinary dividends Qualified diVIdends IRS Center where partnership led return Dividend equivalents Check if this is a publicly traded partnership (PTP) Partner '3 identifying number Partner's name, address, city, state, and ZIP code Royalties Net shorteterm capital gain (loss) Alternative minimum tax(AM1) items Net longeterm capital gain (loss) Collectibles (28%) gain (loss) Unrecaptured section 1250 gain Taxeexempt income and nond ed uctible expenses General partner or LLC mem beremanager Limited partner or other LLC member Domestic partner Foreign partner What type of entity is this partner? fthis partner is a retirement plan (IRA/SEP/Keoghletc.), check here Partner's share of prot, loss. and capital (see instructions): Beginning Ending Profit % % Loss Net section 1231 gain (loss) Other income (loss) Distributions Section 179 deduction 20 Other information Capital % Partner's share of liabilities: Beginning Nonrecourse Qualified nonrecourse financing . . . $ Recourse . . . $ 13 Other deductions 14 Selfeemployment earnings (loss) Partner's capital account analysis: Beginning capital account . Capital contributed during the year Current year increase (decrease) Withdrawals & distributions Ending capital account . Tax basis Section 704(b) book Other (explain) Did the partner contribute property with a builtein gain or loss? Yes No If \"Yes,\" attach statement (see instructions) For Paperwork Reduction Act Notice, see Instructions for Form 1065. www.irs.gov/Form1065 *See attached statement for additional information. For IRS Use Only | Cat. No. 11394R Schedule K1 (Fon'n 1065) 2018 Schedule K-1 (Form 1065) 2018 Page 2 This list identifies the codes used on Schedule K-1 for all partners and provides summarized reporting information for partners who file Form 1040. For detailed reporting and filing information, see the separate Partner's Instructions for Schedule K-1 and the instructions for your income tax return. 1. Ordinary business income (loss). Determine whether the income (loss) is Code Report on passive or nonpassive and enter on your return as follows. Work opportunity credit Report on Passive loss See the Partner's Instructions L K Disabled access credit Empowerment zone Passive income Schedule E, line 28, column (h) employment credit Nonpassive loss See the Partner's Instructions M Credit for increasing research Nonpassive income Schedule E, line 28, column (k activities See the Partner's Instructions 2. Net rental real estate income (loss) N Credit for employer social 3. Other net rental income (loss See the Partner's Instructions security and Medicare taxes Net income Schedule E, line 28, column (h) Backup withholding p Other credits Net loss See the Partner's Instructions 16. Foreign transactions 4. Guaranteed payments Schedule E, line 28, column (k) . Interest income Form 1040, line 2b Name of country or U.S. possession 6a. Ordinary dividends Form 1040, line 3b 6b. Qualified dividends Form 1040, line 3a Gross income from all sources Gross income sourced at Form 1116, Part I 6c. Dividend equivalent See the Partner's Instructions evel 7. Royalties Schedule E, line 4 Foreign gross income sourced at partnership level 8. Net short-term capital gain (loss) Schedule D, line 5 D Section 951A category 9a. Net long-term capital gain (loss) 9b. Collectibles (28%) gain (loss Schedule D, line 12 Foreign branch category 28% Rate Gain Worksheet, line 4 Passive category G General category Form 1116, Part I 9c. Unrecaptured section 1250 gain (Schedule D instructions) 0. Net section 1231 gain (loss) See the Partner's Instructions H Other See the Partner's Instructions Deductions allocated and apportioned at partner level 11. Other income (loss) Interest expense Code Form 1116, Part Other Form 1116, Part A Other portfolio income (loss) See the Partner's Instructions B Involuntary conversions See the Partner's Instructions income Deductions allocated and apportioned at partnership level to foreign source Sec. 1256 contracts & straddles Form 6781, line 1 Section 951A category Mining exploration costs recapture See Pub. 535 Cancellation of debt Schedule 1 (Form 1040), line 21 or L Foreign branch category Form 982 M Passive category N General category Form 1116, Part I Section 951A income 0 Other Section 965(a) inclusion Subpart F income other than sections 951A and 965 inclusion See the Partner's Instructions Other information Total foreign taxes paid Form 1116, Part II I Other income (loss Total foreign taxes accrued Form 1116, Part II Reduction in taxes available for credit Form 1116, line 12 12. Section 179 deduction See the Partner's Instructions Foreign trading gross receipts 13. Other deductions Cash contributions (60%) Extraterritorial income exclusion Form 8873 Section 951A(c)(1)(A) tested income Form 8873 C B Cash contributions (30%) Tested foreign income tax Noncash contributions (50%) W Section 965 information See the Partner's Instructions D Noncash contributions (30%) Capital gain property to a 50% See the Partner's X Other foreign transactions Instructions Alternative minimum tax (AMT) items organization (30%) - Capital gain property (20%) A Post-1986 depreciation adjustment G Contributions (100%) Adjusted gain or loss See the Partner's H Investment interest expense Form 4952, line 1 Depletion (other than oil & gas) Oil, gas, & geothermal- gross income Instructions and Deductions-royalty income Schedule E, line 19 the Instructions for J Section 59(e)(2) expenditures See the Partner's Instructions Oil, gas, & geothermal-deductions Form 6251 Other AMT items K Excess business interest expense L Deductions-portfolio (other) See the Partner's Instructions Schedule A, line 16 18. Tax-exempt income and nondeductible expenses M Amounts paid for medical insurance Schedule A, line 1 or Schedule 1 Tax-exempt interest income Form 1040, line 2a N Educational assistance benefits (Form 1040), line 29 B Other tax-exempt income See the Partner's Instructions See the Partner's Instructions C Nondeductible expenses See the Partner's Instructions 0 Dependent care benefits Form 2441, line 12 19. Distributions P Preproductive period expenses Commercial revitalization deduction See the Partner's Instructions A Cash and marketable securities B Distribution subject to section 737 See the Partner's Instructions from rental real estate activities See Form 8582 instructions Other property Pensions and IRAS 20. Other information S Reforestation expense deduction See the Partner's Instructions A Investment income Form 4952, line 4a T through V See the Partner's Instructions Reserved for future use Investment expenses Form 4952, line 5 W Other deductions See the Partner's Instructions Fuel tax credit information Form 4136 X Section 965(c) deduction See the Partner's Instructions Qualified rehabilitation expenditures See the Partner's Instructions 14. Self-employment earnings (loss) (other than rental real estate Note: If you have a section 179 deduction or any partner-level deductions, see the basis of energy property See the Partner's Instructions Form 8611, line 8 Partner's Instructions before completing Schedule SE. Recapture of low-income housing Net earnings (loss) from credit (section 420(5)) self-employment Schedule SE, Section A or B Recapture of low-income housing Form 8611, line 8 credit (other) B Gross farming or fishing income See the Partner's Instructions C- I Recapture of investment credit See Form 4255 C Gross non-farm income See the Partner's Instructions Recapture of other credits See the Partner's Instructions 5. Credits Look-back interest-completed See Form 8697 A Low-income housing credit (section 420)(5)) from pre-2008 K long-term contracts Look-back interest-income forecast See Form 8866 buildings method Low-income housing credit L Dispositions of property with (other) from pre-2008 buildings C Low-income housing credit M section 179 deductions Recapture of section 179 deduction (section 420)(5)) from Interest expense for corporate post-2007 buildings D Low-income housing credit See the Partner's Instructions partners Z through (other) from post-2007 buildings AA Section 199A income Section 199A W-2 wages See the Partner's E Qualified rehabilitation Instructions expenditures (rental real estate) AC AB Section 199A unadjusted basis Other rental real estate credits AD Section 199A REIT dividends F Section 199A PTP income Other rental credits AE Excess taxable income Undistributed capital gains credit Schedule 5 (Form 1040), line 74, box a AF Excess business interest income Biofuel producer credit See the Partner's Instructions AG Gross receipts for section 59A(e) AH Other information