On 7203- yes you need to add the 4000 to your contributions (increase) in basis and this is what allows you to take the 4000 loss. So, your basis at the end of year 1 is still 0.
Just report your K-1 as shown since you contributed to your basis to cover the loss. This will populate the 1040 accurately with your allowable loss based on your whole tax situation.
@GeneMiller
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