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:

Question

$5,000
$20,000
$25,000
$80,000

is it 20,000

Answer 1

$25,000 - $20,000 = $5,000 remaining basis. The $16,000 allocated to Bailey is limited to the $5,000 at-risk.

Answer: $5,000