On january 1, x9, gerald received his 50% profits and capital interest in high air, llc in exchange for $2,000 in cash and real property with a $3,000 tax basis secured by a $2,000 nonrecourse mortgage. high air reported a $15,000 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? a. $0, $4,000 b. $0, $7,500 c. $0, $15,000 d. $4,000, $0 e. none of the above

option (E) None of the above

Explanation:

Data provided in the question:

Cash = $2000

Real Property = $3,000

Nonrecourse mortgage = $2,000

Loss reported = $15,000

Now,

Gerald's initial tax basis

= Exchange in cash + Real property with tax basis - Nonrecourse mortgage +(50% of $2000)

= $2,000 + $3,000 - $2,000 + 1,000

= $4,000

and,

Gerald's would be allocated 50% of Loss

= 50% of $15,000

= $7,500

Thus,

Gerald deduction currently is limited to his basis

i.e

Gerald can deduct $4,000

and the remaining  amount

i.e Loss of $3,500 ($7,500 - $4,000) would be suspended and carried forward indefinitely.  

Hence,

the answer is option (E) None of the above

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