In 2013,Arnold Invests $80,000 for a 20% Interest in a Partnership

question 9

Multiple Choice

In 2013,Arnold invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Arnold's share.Which of the following statements is incorrect?

• A)Since Arnold has only $80,000 of capital at risk,he cannot deduct any more than this amount against his other income.
• B)Arnold's nondeductible loss of $20,000 can be carried over and used in future years (subject to the at-risk provisions).
• C)If Arnold has taxable income of $40,000 from the partnership in 2014 and there are no other transactions that affect his at-risk amount,he can use all of the $20,000 loss carried over from 2013.
• D)Arnold's $100,000 loss is nondeductible in 2013 and 2014 under the passive loss provisions.
• E)All of the statements are correct.

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Definitions:

Investment Center

A business unit or department that is responsible for its own revenues, expenses, and investment in assets, with its performance measured by its return on investment.

Controllable Margin

The portion of profit or income directly influenced by the management decisions, typically excluding fixed costs.

Required Return

The minimum expected return by investors for providing capital, based on the risk of the investment.

Operating Assets

Assets used in the daily operations of a business to generate revenue, such as machinery, building, and equipment.