Bailey owns a 20% interest in a partnership not involved in real estate)in which his at-risk amount was $25,000 at the beginning of the year.During the year,Bailey receives a distribution of $20,000 from the partnership.The partnership produces an $80,000 loss during the year.If you ignore the passive loss rules,Bailey's deductible loss for the year is:
A)$25,000.
B)$80,000.
C)$5,000.
D)$20,000.

Question

Quizplus · Accepted Answer

Bailey's at-risk amount at the end of the year is $5,000 ($25,000 - $20,000 distribution). Since the partnership is not involved in real estate, the at-risk rules are the only limitation on the deductibility of Bailey's loss. Therefore, Bailey can deduct up to his at-risk amount of $5,000.

Bailey Owns a 20% Interest in a Partnership Not Involved