In 2019, Wang invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Wang's share.Which of the following statements is incorrect?
A)Since Wang has only $80,000 of capital at risk, he cannot deduct any more than this amount against his other income.
B)Wang's nondeductible loss of $20,000 can be carried over and used in future years (subject to the at-risk provisions).
C)If Wang has taxable income of $40,000 from the partnership in 2020 and there are no other transactions that affect his at-risk amount, he can use all of the $20,000 loss carried over from 2019.
D)Wang's $100,000 loss is nondeductible in 2019 and 2020 under the passive activity loss provisions.
E)All of the statements are correct.

Question

Quizplus · Accepted Answer

As Wang is a material participant, his share of the partnership loss is not subject to the passive activity loss provisions. However, since he only invested $80,000, he can only deduct up to that amount against his other income, making statement A correct. Statement B is correct as well, as nondeductible losses can be carried over and used in future years subject to the at-risk provisions. Statement C is incorrect, because Wang can only use the carried-over loss to the extent of his at-risk amount, which may be less than the $20,000 carried over. Statement E is incorrect, as statement D is incorrect. Hence, the correct answer is D.

In 2019, Wang Invests $80,000 for a 20% Interest in a Partnership