Manuel purchased a 30% interest in MAC general partnership for $40,000 cash and materially participated in the partnership for the entire year.The partnership had $50,000 in liabilities when Manuel purchased his interest and the liabilities increased $10,000 during the year.If the partnership incurred a $300,000 loss this year, how much of this loss can Manuel deduct?
A)0
B)$40,000
C)$58,000
D)$65,000

Question

Quizplus · Accepted Answer

Manuel's basis in the partnership is his cash contribution plus his share of the partnership's liabilities. His initial basis is $40,000 (cash) + $15,000 (30% of $50,000 liabilities) = $55,000. With the increase in liabilities, his basis increases by $3,000 (30% of $10,000), making his total basis $58,000. He can deduct up to his basis, which is $58,000.

Manuel Purchased a 30% Interest in MAC General Partnership for $40,000