Rinaldo Owns 20% of Mahoney Company, a Partnership

Multiple Choice

Rinaldo owns 20% of Mahoney Company, a partnership. Rinaldo's adjusted basis in the partnership is $32,000 at the beginning of the current year. During the current year, Rinaldo receives a $10,000 cash distribution from the partnership. Mahoney Company reports a $200,000 operating loss for the current year. Which of the following statements is/are correct?
I.Rinaldo's maximum loss deduction is limited to $22,000.
II.If Rinaldo is a material participant in Mahoney, he can deduct a $40,000 loss.
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A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.