ExpertHard1 markMultiple Choice
CPA · Question 43 · Area V: Entity Taxation
A taxpayer holds a 30% interest in a partnership. The partnership agreement states that the taxpayer's share of liabilities is 30%. The partnership has $100,000 in nonrecourse liabilities. The taxpayer has an outside basis of $50,000. The partnership incurs a loss of $200,000 for the year. What is the maximum loss the taxpayer can deduct, assuming the passive activity rules do not apply?
A taxpayer holds a 30% interest in a partnership. The partnership agreement states that the taxpayer's share of liabilities is 30%. The partnership has $100,000 in nonrecourse liabilities. The taxpayer has an outside basis of $50,000. The partnership incurs a loss of $200,000 for the year. What is the maximum loss the taxpayer can deduct, assuming the passive activity rules do not apply?
Answer options:
A.
$60,000
B.
$50,000
C.
$80,000
D.
$30,000
How to approach this question
Loss Limit #1: Basis. You can't deduct more than your basis.
Full Answer
B.$50,000✓ Correct
B
A partner's distributive share of partnership loss is allowed only to the extent of the adjusted basis of the partner's interest in the partnership at the end of the partnership year. Basis ($50,000) < Share of Loss ($60,000). Deduction limited to $50,000.
Common mistakes
Deducting the full share of loss despite insufficient basis.
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