Reference no: EM132648167
Problem - Jasmine Gregory is a 20% member in Sparrow Properties LLC, which is a lessor of residential rental property. Her share of the LLC's losses for the current year is $100,000. Immediately before considering the deductibility of this loss, Jasmine's capital account (which, in this case, corresponds to her basis excluding liabilities) reflected a balance of $50,000. Jasmine has personally guaranteed a $10,000 debt of the LLC that is allocated to her as a recourse debt. Her share of the LLC's nonrecourse debt is $30,000. This debt cannot be treated as qualified nonrecourse financing. Jasmine spends several hundred hours a year working for Sparrow Properties.
Jasmine is also a managing member of Starling Rentals LLC, which is engaged in long-term (more than 30 days) equipment rental activities. (This is considered a passive activity.) Jasmine's share of Starling's income is $36,000.
Jasmine is a single taxpayer. Her modified adjusted gross income before considering the LLCs' activities is $300,000, and she has no other business losses. The "active participation" rental real estate deduction is not available to Jasmine. Determine how much of Sparrow's $100,000 loss Jasmine can deduct on her current calendar year return. Using the format (1) facts, (2) at issue, (3) conclusion, and (4) law and analysis, draft a memo for the client's tax file describing the loss limitations. Identify the Code sections, if any, under which losses are suspended.
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