Fundamentals of Taxation 2011 4th Edition by Ana Cruz, Debra Prendergast, Dan Schisler, Michael Deschamps

Exercise 6

Leonard invests $10,000 cash in an equipment-leasing activity for a 15% share in the business. The 85% owner is Rebecca, who contributes $10,000 and borrows $75,000 to put in the business. Only Rebecca is liable for repayment of the loan. The partnership incurs a loss of $125,000 during the year. What amount of the loss is deductible currently by Leonard and Rebecca (ignore passive activity loss rules)? a. $0 by Leonard and $0 by Rebecca.
B) $10,000 by Leonard and $85,000 by Rebecca.
C) $18,750 by Leonard and $106,250 by Rebecca.
D) $21,250 by Leonard and $73,750 by Rebecca.