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 $11,900 and $4,100, respectively, and the partnership did not have any liabilities. During the current year, the partnership reported the following results from operations: Net sales $ 684,000 Cost of goods sold 511,000 Operating expenses 186,000 Short-term capital loss 2,800 Tax-exempt interest 3,100 1231 gain 7,100 On the last day of the year, the partnership distributed $4,100 each to Lance and Francesca. Comprehensive Problem 15-81 Part 1 (Algo) What outside basis do Lance and Francesca have in their partnership interests at the end of the year? How much of their losses are currently not deductible by Lance and Francesca

because of the tax-basis limitation? To what extent does the passive activity loss limitation apply in restricting their deductible losses for the year?