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    Tax Problem: Barney and Jones loss for 2008

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    The partnership of Barney and Jones realized an ordinary loss of $42,000 in 2008. Both the partnership and the two partners are on a calendar-year basis. The partners materially participate in the partnership's activities and share profits and losses equally. At December 31, 2008, Barney had an adjusted basis of $18,000 for his partnership interest before taking the 2008 loss into consideration. On his individual income tax return for 2008, Barney should deduct:
    An ordinary loss of $18,000.
    An ordinary loss of $21,000.
    An ordinary loss of $18,000 and a capital loss of $3,000.
    A capital loss of $21,000

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    Solution Preview

    Losses from a partnership to a partner are limited to the amount of adjusted basis of each partner. The theory actually ...

    Solution Summary

    In five sentences, the response explains the amount of deduction for Barney and the reasons.