Question 1

A taxpayer is a 10% partner in a partnership. The partnership incurred a $100,000 ordinary loss for the year. The taxpayer's adjusted basis in the partnership interest at the end of the year (before loss) was $8,000. The taxpayer's at-risk amount was $6,000. The taxpayer materially participates in the partnership. What amount of loss can the taxpayer deduct on their individual return?

Accepted Answer

Apply ordering rules: 1) Basis Limit ($8k). 2) At-Risk Limit ($6k). 3) Passive Limit (N/A - Material Participation). Deductible = Lowest limit.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Stopping at the basis limit and ignoring the stricter at-risk limit.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA REG Practice Exam 2

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