Income or Loss From Flow-Through Business Entities - Business Loss Limitations - Tax Basis Limitation
3 important questions on Income or Loss From Flow-Through Business Entities - Business Loss Limitations - Tax Basis Limitation
What is a taxpayer's tax basis in a flow-through entity?
A taxpayer's tax basis in his or her ownership interest in a (flow-through) business is his or her investment in the business, adjusted for items such as the partner's share of income or loss, distributions, and, in the case of a partnership, partner's share of liabilites or, in the case of an S corporation, a shareholder loan.
Under what condition can a loss be deducted on an owner's individual income tax return?
A loss can only be flowed through to the owner's individual income tax return and deducted to the extent of the owner's tax basis.
What happens to a loss in excess of the owner's tax basis?
A loss in excess of the owner's tax basis is suspended until tax basis is reinstated in future years, and is carried forward indefinitely.
Any suspended losses due to insufficient tax basis remaining when the owner disposes of his or her interest in the flow-through entity are lost.
Any suspended losses due to insufficient tax basis remaining when the owner disposes of his or her interest in the flow-through entity are lost.
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