Terri owns a 50 percent interest in the TT Partnership.At the beginning of the year, her basis in her partnership interest was $75,000.The partnership reports a $40,000 loss for the year and distributes $4,000 cash to Terri.What is Terri's deductible loss (included in her gross income) as a result of her 50 percent interest in TT?
A)$75,000
B)$51,000
C)$20,000
D)$16,000

Question

Quizplus · Accepted Answer

Terri's deductible loss is limited to her basis in the partnership. Her initial basis is $75,000. The partnership loss allocated to her is $20,000 (50% of $40,000). The cash distribution reduces her basis by $4,000, leaving her with a basis of $71,000. Since her basis is sufficient to cover the $20,000 loss, she can deduct the full $20,000.

Terri Owns a 50 Percent Interest in the TT Partnership