Dana Bakker invested $25,000 as a limited partner in a partnership in 2020.Dana's partnership interest is 30%.The partnership reported a business loss of $100,000 in 2020.Dana is in a 45% tax bracket.What is the net cash cost of Dana's investment in 2020?
A)$7,500
B)$11,250
C)$13,750
D)$25,000

Question

Quizplus · Accepted Answer

Dana's share of the business loss is $30,000 ($100,000 x 30%). As a limited partner, Dana's maximum loss is limited to her initial investment of $25,000. Therefore, she can claim a tax deduction of $25,000. 
The net cash cost of her investment is the amount she invested minus the tax savings. 
Tax savings = $25,000 x 45% (tax bracket) = $11,250 
Net cash cost = $25,000 - $11,250 = $13,750. 
Therefore, the answer is C.

Dana Bakker Invested $25,000 as a Limited Partner in a Partnership