7-6 Adjust the tax basis in a partnership interest
• 7-7 Apply the basis limitation on the deduction of partnership losses
On January 1, Year 1, Ginger, an individual, paid $16,000 for 5 percent of the stock in Root Corp., an S corporation. In November Year 1,
he loaned $9,000 to Root Corp. in return for a promissory note. Root Corp. generated a $610,000 operating loss in Year 1. Root
Corp. generated $409,000 ordinary business income in Year 2.
Required:
a. How much of Ginger's share of this income is included in his Year 2 taxable income?
b. Compute Ginger's basis in his Root Corp. stock and his Root Corp. note at the end of Year 2.
c. How would your answers to parts a and b change if Root Corp.'s ordinary business income was only $221,000?
Complete this question by entering your answers in the tabs below.
Req A and B
Req C
a. How much of Ginger's share of this income is included in his Year 2 taxable income?
b. Compute Ginger's basis in his Root Corp. stock and his Root Corp. note at the end of Year 2.
Amount
Taxable income
$ 20,450
Adjusted basis
Root Stock
$ 5,950
Root Note
$ 9,000
