Question: On Jan. 1, Edna and Stacy each contributed $100 in cash to a new limited liability company (LLC) taxed as a partnership, Counting Cowgirls. Each partner has a 50% interest in the LLC. The LLC immediately obtained an $800 loan to purchase a laser printer, qualifying for $320 of bonus depreciation (40% of $800). This creates a business loss of $320 for the year. Can Edna and Stacy deduct this loss against their outside basis, or is the loss suspended?
Answer: Yes, Edna and Stacy can each deduct their share of the $320 loss. Deductibility hinges on outside basis, which is sufficient due to the liability allocation.
Each partner contributed $100. The $800 partnership loan increased each partner’s outside basis by their $400 share of liabilities, bringing their outside basis to $500 each ($100 + $400). Outside basis includes a partner’s share of liabilities and cannot go negative. Losses are only deductible to the extent of a partner’s outside basis.
The $320 bonus depreciation is allocated equally, resulting in a $160 loss per partner. Outside basis, remains positive at $340 ($500 - $160), so the entire loss is currently deductible.
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