ExpertHard1 markMultiple Choice
CPA · Question 46 · Area IV: Individual Taxation
A taxpayer is a 10% partner in a partnership. The partnership incurred a $100,000 ordinary loss for the year. The taxpayer's adjusted basis in the partnership interest at the end of the year (before loss) was $8,000. The taxpayer's at-risk amount was $6,000. The taxpayer materially participates in the partnership. What amount of loss can the taxpayer deduct on their individual return?
A taxpayer is a 10% partner in a partnership. The partnership incurred a $100,000 ordinary loss for the year. The taxpayer's adjusted basis in the partnership interest at the end of the year (before loss) was $8,000. The taxpayer's at-risk amount was $6,000. The taxpayer materially participates in the partnership. What amount of loss can the taxpayer deduct on their individual return?
Answer options:
A.
$10,000
B.
$8,000
C.
$6,000
D.
$0
How to approach this question
Apply ordering rules: 1) Basis Limit ($8k). 2) At-Risk Limit ($6k). 3) Passive Limit (N/A - Material Participation). Deductible = Lowest limit.
Full Answer
C.$6,000✓ Correct
C
Share of loss = 10% of $100,000 = $10,000. Limitation 1 (Basis): Limit is $8,000. $2,000 suspended. Limitation 2 (At-Risk): Of the $8,000 allowed by basis, only $6,000 is at risk. Limit is $6,000. $2,000 suspended under at-risk. Limitation 3 (Passive): Material participation, so no passive limit. Deductible amount = $6,000.
Common mistakes
Stopping at the basis limit and ignoring the stricter at-risk limit.
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