Which of the Following Statements Regarding the Basis Limitation on Deduction

question 9

Multiple Choice

Which of the following statements regarding the basis limitation on deduction of partnership losses is false?

• A) If a partner's share of partnership losses exceeds the partner's tax basis in the partnership interest, the excess is not deductible in the current year.
• B) Partnership losses that are not deductible due to the basis limitation can be carried forward indefinitely.
• C) Partners can increase tax basis in their partnership interest only by making additional capital contributions.
• D) If a partnership becomes profitable in the future, the partner's share of such future income will create basis against which loss carryforwards can be deducted.

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Definitions:

Initial Cash Balance

The amount of cash a company has at the beginning of a financial period.

Speculative Motive

The intention to hold cash or other assets in anticipation of profit from fluctuations in their prices or exchange rates.

Investment Opportunities

Options available to individuals and firms to invest capital with the intent to generate returns.