Question

Rhonda has an adjusted basis and an at-risk amount of $25,600 in a passive activity at the beginning of the year. She also has a suspended passive activity loss of $5,120 carried over from the prior year. During the current year, she has a loss of $40,960 from the passive activity. Rhonda has no passive activity income from other sources this year. Determine the following items relating to Rhonda's passive activity as of the end of the year.
At year-end, Rhonda has the following:

a. Adjusted basis in the passive activity: ______$0
b. Loss suspended under the at-risk rules: _____$4500
c. Suspended passive activity loss: $______

Answer 1

Answer:

a) Ending adjusted basis and at-risk amount $ 0

(b)The current passive loss is $12,000. Because $7,500 of the loss is used to reduce

the at-risk amount to $0, $4,500 is suspended under the at-risk rules ($12,000 − $7,500 = $4,500).

(c) The $7,500 loss that is not limited by the at-risk rules is subject to the passive loss

rules. Because the taxpayer has not generated any passive income during the year, this $7,500 current-year passive loss is suspended. Therefore, the total suspended passive loss carried forward to subsequent years totals $9,000 ($7,500 current-year suspended loss + $1,500 prior year suspended loss).

Explanation: