Harold has a 50% interest in a general partnership that has a $14,000 loss for the year. He materially participates in the partnership, his basis in the partnership is $10,000 at the beginning of the year. He also has salary from other employment of $46,000. If he is single and claims the standard deduction, what are his taxable income and tax liability, respectively, in 2018?
A) $27,000; $3,050
B) $39,000; $4,490
C) $46,000; $5,330
D) None; $0

Question

Quizplus · Accepted Answer

Harold's share of the partnership loss is 50% of $14,000, which is $7,000. His basis is sufficient to deduct the loss. His taxable income is $46,000 (salary) - $7,000 (loss) - $12,000 (standard deduction for 2018) = $27,000. The tax liability on $27,000 using 2018 tax rates is approximately $3,050.

Harold Has a 50% Interest in a General Partnership That