Question:

Sue invested $5,000 in the ABC Limited Partnership and received a 10 percent interest in the partnership. The partnership had $20,000 of qualified nonrecourse debt and $20,000 of debt she is not responsible to repay because she is a limited partner. Sue is allocated a 10 percent share of both types of debt resulting in a tax basis of $9,000 and an at risk amount of $7,000. During the year, ABC LP generated a ($90,000) loss. How much of Sue''s loss is disallowed due to her tax basis or at-risk amount?

a) Zero; all of her loss is allowed to be deducted.
b) $2,000 disallowed because of her at- risk amount.
c) $2,000 disallowed because of her tax basis.
d) $4,000 disallowed because of her tax basis.
e) $4,000 disallowed because of her at-risk amount.

When a bond is purchased in the secondary bond market at a discount, the amount of discount treated as interest income when the bond is sold prior to maturity is the:

a) market premium
b) market discount
c) accrued market premium
d) accrued market discount
e) None of these

Assume that Joe has a marginal tax rate of 35 percent and decides to make the election to include long-term capital gains and qualified dividends as investment income. What rate must Joe use when calculating the tax on these two items?

a) 15%
b) 25%
c) 28%
d) 35%
e) None of these