Problem:
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