Roberta and Donald do business as the RD Partnership, sharing profits and losses equally.Donald 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, Donald's basis in the partnership was $150,000; he made no withdrawals from the partnership during the year.The partnership sustained an operating loss of $500,000 in the current year.Donald's personal income tax return for the current year should include:
A)An ordinary loss of $150,000.
B)An ordinary loss of $250,000.
C)An ordinary loss of $150,000 and a capital loss of $100,000.
D)An ordinary loss of $100,000 and a capital loss of $150,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Donald's basis in the partnership was $150,000 at the beginning of the year, and he made no withdrawals during the year. The partnership sustained an operating loss of $500,000 in the current year. Donald's share of the loss is $250,000 (50% of $500,000). However, Donald's basis in the partnership is only $150,000. Therefore, Donald's deductible loss is limited to $150,000.

Roberta and Donald Do Business as the RD Partnership, Sharing