John, a limited partner of Candy Apple, LP, is allocated $30,000 of ordinary businessloss from the partnership. Before the loss allocation, his tax basis is $20,000 and at-risk amount is $10,000. John also has ordinary business income of $20,000 from Sweet Pea, LP as a general partner and ordinary business income of $5,000 from Red Tomato, as a limited partner. How much of the $30,000 loss from Candy Apple can John deduct currently?
A) $10,000.
B) $5,000.
C) $30,000.
D) $25,000.

Question

Quizplus · Accepted Answer

John's deduction for the loss allocation from Candy Apple, LP is limited to his tax basis and at-risk amount, which is $10,000. Since he has other sources of income, he can use the remaining $5,000 (loss allocation - deduction limit) to offset his other ordinary business income, resulting in a taxable ordinary business income of $40,000 ($20,000 from Sweet Pea + $5,000 from Red Tomato + $5,000 from Candy Apple).

John, a Limited Partner of Candy Apple, LP, Is Allocated