In 2019, Wang Invests $80,000 for a 20% Interest in a Partnership

question 20

Multiple Choice

In 2019, Wang 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 Wang's share.Which of the following statements is incorrect?

• A)Since Wang has only $80,000 of capital at risk, he cannot deduct any more than this amount against his other income.
• B)Wang's nondeductible loss of $20,000 can be carried over and used in future years (subject to the at-risk provisions).
• C)If Wang has taxable income of $40,000 from the partnership in 2020 and there are no other transactions that affect his at-risk amount, he can use all of the $20,000 loss carried over from 2019.
• D)Wang's $100,000 loss is nondeductible in 2019 and 2020 under the passive activity loss provisions.
• E)All of the statements are correct.

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Definitions:

Zero-Balance Account

A bank account in which the balance is maintained at zero by automatically transferring funds from a master account.

Compensating Balance

A compensating balance is a minimum balance that must be maintained in a bank account, required by some banks in order for their customers to obtain or maintain a loan.

Master Account

A central account that holds funds or securities, often used by institutions to manage multiple sub-accounts.

Available Balance

The amount of funds in a bank account that is accessible for withdrawal or processing of checks or electronic payments, not including any holds, unprocessed transactions, or restrictions.