25. On January 1, X9, Gerald received his 50 percent profits and capital interest in High Air, LLC, in exchange for $2,700 in cash and real property with a $3,700 tax basis secured by a $2,700 nonrecourse mortgage. High Air reported a $15,700 loss for its X9 calendar year. How much loss can Gerald deduct, and how much loss must he suspend if he only applies the tax basis loss limitation

The amount of loss that Gerald

can deduct is $5,050, and how much loss must he suspend if he only applies the tax basis loss limitation is $2,700

Explanation:

Calculation to determine How much loss can Gerald deduct, and how much loss must he suspend if he only applies the tax basis loss limitation

Calculation for Gerald's initial tax basis is

Gerald's initial tax basis= [$2,700 + $3,700 - $2,700 + (50% × $2,700)]

Gerald's initial tax basis= [$2,700 + $3,700 - $2,700 + $1,350]

Gerald's initial tax basis= $5,050

Calculation for Gerald allocation

Gerald 50% allocation =50%*$15,500

Gerald 50% allocation =$7,750

Calculation for the Remaining loss that would be suspended and carried forward indefinitely

Suspended loss= $7,750-$5,050

Suspended loss= $2,700

Therefore the amount of loss that Gerald

can deduct is $5,050, and how much loss must he suspend if he only applies the tax basis loss limitation is $2,700 ($7,750-$5,050)

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