On the First Day of the Partnership's Tax Year, Karen

question 54

Multiple Choice

On the first day of the partnership's tax year, Karen purchases a 50% interest in a general partnership for $30,000 cash and she materially participates in the operation of the partnership for the entire year. The partnership has $40,000 in recourse liabilities when Karen enters the partnership. Partners share the economic risk of loss from recourse liabilities in the same way they share partnership losses. There is no minimum gain related to the nonrecourse liability. During the year, the partnership incurs a $120,000 loss and a $20,000 increase in liabilities. How much of the loss can Karen report on her tax return for the current year?

• A) $30,000
• B) $60,000
• C) $40,000
• D) $50,000

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Definitions:

Capacity

The maximum level of output that a company can sustain to make a product or provide a service.

Capital

Funds or other assets that are used for starting, maintaining, or expanding a business.

Economic Condition

The state of a country's economy at a given time, influenced by factors such as GDP, unemployment rates, and inflation.

Economic Conditions

The state of a country's economy, influenced by factors such as GDP, unemployment rates, and inflation.