David Purchased a 10% Capital and Profits Interest in a Partnership

question 88

Multiple Choice

David purchased a 10% capital and profits interest in a partnership this year. He does not participate in the partnership's business. David has no passive income in the current year. His distributive share of the partnership's loss is $40,000 for this year. David's Sec. 705 basis in the partnership is $32,000 and his at-risk basis is $16,000 at the end of the current year. How much of the loss can David deduct on his tax return?

• A)$0
• B)$16,000
• C)$32,000
• D)$40,000

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Definitions:

Treasury Note

A type of government bond issued by the U.S. Department of the Treasury with intermediate maturities ranging from 1 to 10 years.

Settlement

The process of transferring ownership of securities from the seller to the buyer and the corresponding payment from the buyer to the seller.

Accrued Interest

Interest that has been incurred but not yet paid, often considered in bond pricing and transactions.

Financial Press

Media outlets that provide news, analysis, and commentary on financial and economic subjects, including markets and business trends.