Joy Is a Material Participant in a Partnership

question 59

Multiple Choice

Joy is a material participant in a partnership.Her basis in her partnership interest is $150,000.Due to a major expansion,the partnership will generate a significant loss this year,and Joy's share is expected to be $200,000.The partners expect the partnership to report a large profit next year.Joy is in the top tax bracket this year,and she expects to be in a lower tax bracket next year.Due to her higher marginal tax rate this year,Joy would like to deduct her full share of the partnership loss this year.What strategies can she employ before year-end to assure full deduction of this year's loss?

• A)As a material participant,Joy will be entitled to deduct her full share of the partnership loss this year.
• B)Joy can make a loan to the partnership before year-end.
• C)Joy can contribute capital to the partnership before year-end.
• D)Either Response B or Response C will allow Joy to deduct her full share of the loss.

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Definitions:

Outstanding Shares

Stocks that a corporation has distributed and are currently owned by investors, encompassing both members of the general public and internal stakeholders of the company.

Net Income

The company's net income following the deduction of all costs, taxes, and losses.

Accrued Interest

The interest on a bond or loan that has accumulated since the principal investment, or since the previous interest payment if there has been one already.

Brokerage Fees

Charges imposed by a broker for acting as the intermediary in facilitating transactions, such as buying or selling securities.