In 2017, Kelly Earns a Salary of $200,000 and Invests

question 74

Essay

In 2017, Kelly earns a salary of $200,000 and invests $40,000 for a 20% interest in a partnership not subject to the passive activity loss rules. Through the use of $800,000 of nonrecourse financing, the partnership acquires assets worth $1 million. The activity produces a loss of $150,000, of which Kelly's share is $30,000. In 2018, Kelly's share of the loss from the partnership is $15,000. How much of the loss from the partnership can Kelly deduct?

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Definitions:

Exercise

In financial terms, it refers to the act of invoking the right to buy or sell the underlying asset in a derivative contract.

Payoffs

The potential financial returns or losses from an investment, transaction, or strategy, often evaluated at the time of an investment's maturity or closure.

Assets

Items of value owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.

Put-call Parity

A principle stating the relationship between the prices of European put and call options with the same strike prices and expiration dates, highlighting the arbitrage opportunities.