Joy is a material participant in a partnership.Her basis in her partnership interest is $250,000.Due to a major expansion,the partnership will generate a significant loss this year,and Joy's share is expected to be $300,000.The partners expect the partnership to report a large profit next year.Joy is in the top tax bracket this year,and she expects to be in a lower tax bracket next year.Due to her higher marginal tax rate this year,Joy would like to deduct her full share of the partnership loss this year.What strategies can she employ before year-end to assure full deduction of this year's loss?
A)As a material participant,Joy will be entitled to deduct her full share of the partnership loss this year.
B)Joy can make a loan to the partnership before year-end.
C)Joy can contribute capital to the partnership before year-end.
D)Either Response B or Response C will allow Joy to deduct her full share of the loss.

Question

Quizplus · Accepted Answer

D)Joy's deduction of the loss will be limited to her basis.She will need to increase her basis before year-end in order to deduct the full loss.She can raise her partnership basis by either making a loan to the partnership or contributing capital to the partnership.

Joy Is a Material Participant in a Partnership