Olivia owns 40% of Addison Company, a partnership. Olivia's adjusted basis in the partnership is $22,000 at the beginning of the year. During the current year, Olivia receives a $10,000 cash distribution from the partnership. Addison Company reports a $100,000 operating loss for the current year. If Olivia is a material participant in Addison Company, how much of the partnership loss can she deduct on her income tax return?
A)$-0-
B)$10,000
C)$12,000
D)$40,000

Question

Quizplus · Accepted Answer

Olivia can deduct her share of the partnership loss up to her adjusted basis. Her share of the loss is 40% of $100,000, which is $40,000. However, her basis is reduced by the $10,000 distribution, leaving $12,000 available to deduct.

Olivia Owns 40% of Addison Company, a Partnership