Identify which of the following statements is true.
A)When adjusting a partner's basis in a partnership interest, the negative basis adjustments are made prior to the positive basis adjustments.
B)Martin and Carlos formed an equal partnership to which Martin contributed $10,000 cash and Carlos contributed a building worth $10,000 with a basis of $2,000. In the first year of operation, the partnership suffered a $10,000 ordinary loss. Martin and Carlos can each deduct a $5,000 loss on their personal tax returns.
C)Any distributive share of a loss that cannot be deducted by a partner because of the Sec. 704(d)basis loss limitation is permanently lost.
D)All of the above are false.

Question

Quizplus · Accepted Answer

The correct statements are as follows: A) Positive basis adjustments are generally made before negative basis adjustments. B) The ability for Martin and Carlos to deduct the loss depends on their adjusted basis in the partnership, which may not allow for a full $5,000 deduction each. C) If a partner's distributive share of a loss is disallowed because of the basis limitation, it is not permanently lost but can be carried forward and potentially deducted in future years when the partner has sufficient basis.

Identify Which of the Following Statements Is True