Question

20. Anna reports the following income and loss: Salary$ 135,000 Income from activity A60,000 Loss from activity B( 35,000) Loss from activity C( 55,000) Activities A, B, and C are all passive activities. Based on this information, Anna has the following suspended losses: A) Activity BActivity C $11,667$18,333 B) Activity BActivity C $35,000$55,000 C) Activity BActivity C $10,000$20,000 D) Activity BActivity C $0$0

Answer 1

Answer:

Based on this information, Anna has the following suspended losses:

A) Activity B    Activity C

     $11,667      $18,333

Explanation:

a) Data and Calculations:

Income and Loss:

Salary                         $ 135,000

Income from activity A  60,000

Loss from activity B    ( 35,000)

Loss from activity C   ( 55,000)

The loss from activity B and activity C are reduced by the income from activity A in proportion.

Thus, the income from activity A reduces the losses in B and C:

Income from activity A  $60,000

Activity B loss of $35,000 is reduced by $60,000 * $35,000/$90,000 = $23,333 to $11,667 ($35,000 - $23,333)

Activity C loss of $55,000 is reduced by $60,000 * $55,000/$90,000 = $36,667 to $18,333 ($55,000 - $36,667)

b) Note that the losses from activities B and C cannot be reduced by the salary income because both activities are passive sources of income and not active like salary.