Question

Which of the following statements regarding partnerships losses suspended by the tax basis limitation is true?

a. Partnership losses must be used only in the year the losses are created.
b. Partnership losses may be carried back 2 years and carried forward 5 years.
c. Partnership losses may be carried forward indefinitely.
d. Partnership losses may be carried back 2 years and carried forward 20 years.

Answer 1

Answer:

c. Partnership losses may be carried forward indefinitely.

Explanation:

Regarding taxes, the IRS treats partnerships as pass through entities, therefore, if the partners are not able to use the partnership's loss (or losses) to offset any tax basis in their current income statements, they can carry them forward indefinitely (at least theoretically). This can be done until their tax basis is sufficient to offset the losses generated by the partnership.