Angela and Rebecca do business as the Moon Partnership, sharing profits and loss
ID: 2420779 • Letter: A
Question
Angela and Rebecca do business as the Moon Partnership, sharing profits and losses equally. Angela is a material participant in the partnership, and the partnership has no outstanding debt. All parties use the calendar year for tax purposes. On January 1 of the current year, Angela's basis in the partnership was $40,000; she made no withdrawals from the partnership during the year. The partnership sustained an operating loss of $70,000 in the current year. Angela's personal income tax return for the current year should include: Select one:
a. An ordinary loss of $70,000.
b. An ordinary loss of $40,000.
c. An ordinary loss of $40,000 and a capital loss of $30,000.
d. An ordinary loss of $30,000 and a capital loss of $40,000.
Explanation / Answer
Answer:b. An ordinary loss of $40,000.
Because Meets all three loss limitation requirements and can only take a loss up to the basis held in the partnership.