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    Limited Partnership Losses

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    The problem to be solved:

    ***Becky, a single taxpayer, acquired a rental house in 2000. The rental house, which Becky actively manages, generated a $15,000 loss in 2012. In addition, Becky owns a limited partnership interest which she acquired in 2005. Her share of the partnership loss for 2012 is $10,000. Becky has modified AGI, before the rental loss and partnership loss, of $130,000. What is the amount of these losses that Becky may deduct in 2012?***

    "I'm not sure how to treat the partnership loss. I think that the partnership loss may be disallowed, but not sure. I know that under the passive loss rules, individual taxpayers may deduct up to $25,000 of rental property losses against other income, if they are actively involved in the management of the property and if their AGI doesn't exceed $100,000, which if it does exceed this limit, then the $25,000 is phased out and reduced by $.50 for each $1.00 the taxpayer's modified AGI exceeds the limit.

    The rental property loss would be calculated as: $25,000 - (50% of $30,000) = $10,000.
    So the $25,000 special deduction is reduced by $10,000 resulting in a $15,000 deduction for the rental property loss. Next, I would say that the amount of these losses Becky may deduct in 2012 is $15,000.
    Unless, I am to treat each type of loss separately? However, based on my textbook and internet research, I have been unable to locate any info stating that limited partnership losses are subject to the same $25,000 special deduction and AGI limits. Help!!!

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    Solution Preview

    You're on the right track.

    Becky can deduct the lesser of the partnership loss, which was $15,000 or the following, which you already calculated:

    *Note that the $100,000 is the phaseout.)

    25,000 - (130,000 - 100,000) ...

    Solution Summary

    This solution shows the student how to calculate the amount that Becky can deduct in 2012 for her loss on the limited partnership interest that she owns. Additional resources are provided for student expansion on this partnership income tax topic.