Answer:
Explanation:
In last year, Sarah couldn't deduct anything against non passive income and need to allocate the $20,000 net loss between the three loss activities.
Activity Income (Loss)
A 30,000
B (30,000)
C (15,000)
D (5,000)
Net Passive Loss (20,000)
Allocation of net passive loss to Activity B,C and D.
Activity B (30/50 * $20,000) ($12,000)
Activity C (15/50 * $20,000) ($6,000)
Activity D (5/50 * $20,000) ($2,000)
Suspended losses Total ($20,000)
In current year, Sarah has a net gain of $10,000 from sale of Activity D. Sarah can set off $2,000 suspended loss from the activity and the current year’s loss of $1,500 from activity across $10,000 gain. Further, the balancing net gain of $6,500 (10,000-2,000 -1,500) from the sale may be utilized to cover passive losses from the other activities.
