Roy is one of two general partners in XYP Partnership. He receives his Schedule K-1 (Form 1065) from XYP for the current tax year. It shows his share of items as follows: $4,000 in ordinary business loss and $800 in charitable contributions. It also shows a $2,000 cash distribution, which he received on April 1. Roy knows his adjusted basis at the beginning of the tax year was $5,000. He did not contribute funds during the tax year and did not increase his share of partnership liabilities.

This is a two-part question.

Question 1: How much (if any) of the XYP loss can Roy deduct on his personal tax return? Question 2: How much (if any) of the XYP loss must Roy carry forward until his basis is

reestablished?

a) $4,000; $ 0

b) $2,200; $2,800

c) $2,500; $1,500

d) $ 800; $4,000