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2 January, 20:10

In 2019, Liam invested $100,000 for a 25% interest in a partnership involved in an activity in which he is a material participant. The partnership reported losses of $340,000 in 2019 and $180,000 in 2020 with Liam's share being $85,000 in 2019 and $45,000 in 2020. How much of the losses can Liam deduct? a.$85,000 in 2019, $0 in 2020. b.$85,000 in 2019, $15,000 in 2020. c.$0 in 2019, $0 in 2020. d.$85,000 in 2019, $45,000 in 2020. e. None of these choices are correct.

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  1. 2 January, 23:28
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    Hence, Option C ($85,000 in 2019, $15,000 in 2020) is the correct answer.

    Explanation:

    Step 1. Given information.

    A partner can deduct partnership losses only upto his adjusted basis in the partnership.

    So, for 2019; Liam can deduct full loss of $85,000 (since adjusted basis is $100,000)

    Step 2. Formulas needed to solve the exercise.

    For year 2020, his adjusted basis = Invested value - Liam's share.

    Step 3. Calculation.

    100,000 - 85,000 (Loss of 2019) = $15,000

    So, for 2019; Liam can deduct loss only upto $15,000 (although his share of loss comes out to be $45,000). The remaining loss of 30,000 (being 45,000 minus 30,000) will be available to him in the last year of partnership.

    Step 4. Solution.

    Hence, Option C ($85,000 in 2019, $15,000 in 2020) is the correct answer.
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