The XYZ Partnership was formed on January 1 of the current year and incurred a $

Question

The XYZ Partnership was formed on January 1 of the current year and incurred a $48,000 loss for the year ending December 31 of the same year. Each of the three partners share profits and losses equally. Mr. Y is a passive investor in the partnership. On January 1 of the current year, Y contributed $6,000. Mr. Y contributed $10,000 more during the year and had draws of $2,500. The partnership has no portfolio income and no partnership liabilities. What is Y's deductible loss from XYZ for the year if he had $9,500 in income from other passive investments?

$23,500

$13,500

$16,000

$9,500

$23,500

$13,500

$16,000

$9,500

Explanation / Answer

Answer (D) $9500

Explanation

Total deductable loss is equals to loss occurred in partnership but upto the value he has invested in partnership.

Loss in partnership = 48000

Y's share in loss = 16000

Money invested by Y = 6000+10000-2500= 13500

Max loss allowed tbis year = 13500

But loss can be adjusted against income so the max loss deductable is 9500.

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