1. On January 1, Year 1, W invested $15,000 cash and contributed property with an adjusted basis of $5,000 and a fair market value of $20,000 in exchange for a 10% interest in a limited partnership. One general partner has a 50% interest. In Year 1, the partnership purchased an apartment building to rent. The purchase was financed through a nonrecourse nonconvertible debt of $160,000 to a bank. The partnership made only interest payments on the bank loan for 10 years. The partnership incurred a loss of $120,000 in Year 1 and a loss of $300,000 in Year 2. Assuming W deducted his full share of the Year 1 loss in Year 1, how much can he deduct in Year 2? Ignore any passive loss rules.

• A.$23,000
• B.$8,000
• C.$24,000
• D.$30,000

Scott received $50,000 in wages in the current year. He also had a $30,000 loss from a rental real estate activity in which he materially participated. Scott worked in the real estate activity for a total of 1,000 hours, which was 60% of his total workload for the year. How much of the $30,000 loss can Scott deduct in the current year?

• A.$20,000
• B.$18,000
• C.$30,000
• D.$0

Which of the following is passive income?

• A.Fees earned for managing a passive activity.
• B.Gain on sale of property held for investment.
• C.Interest earned on accounts receivable that arose in the ordinary course of a business selling equipment.
• D.Income from an interest in a limited partnership owned by a limited partner.