David purchased a 10% capital and profits interest in a partnership this year. He does not participate in the partnership's business. David has no passive income in the current year. His distributive share of the partnership's loss is $40,000 for this year. David's Sec. 705 basis in the partnership is $32,000 and his at-risk basis is $16,000 at the end of the current year. How much of the loss can David deduct on his tax return?
A)$0
B)$16,000
C)$32,000
D)$40,000

Question

Quizplus · Accepted Answer

Because David has no passive income in the current year and his at-risk basis is only $16,000, he cannot deduct any more than $16,000 of losses from the partnership. The remaining $24,000 loss can be carried forward to future years when David has sufficient at-risk basis.

David Purchased a 10% Capital and Profits Interest in a Partnership