The Gilpin Partnership has an operating loss of $400,000 for the current year. Hawkins is a general partner and owns a 40% interest in the partnership. At the beginning of the year, Hawkins' adjusted basis in the partnership interest is $30,000. During the year the partnership borrows $120,000 with a recourse note. How much of the partnership loss can Hawkins deduct on his current-year income tax return?
A)$- 0 -
B)$30,000
C)$70,000
D)$78,000
E)$200,000

Question

Quizplus · Accepted Answer

As a general partner, Hawkins is responsible for his share of the partnership's losses. Therefore, Hawkins can deduct 40% of the partnership loss:

40% x $400,000 = $160,000

To determine Hawkins' adjusted basis at the end of the year, we need to take into account the partnership loss and the partnership borrowing:

Adjusted basis = Beginning basis - share of losses + share of partnership liability

Adjusted basis = $30,000 - $160,000 + ($120,000 x 40%)

Adjusted basis = $78,000

Therefore, Hawkins can deduct $78,000 on his current-year income tax return.

The Gilpin Partnership Has an Operating Loss of $400,000 for the Current