Question

In Year 1, Lena invests $80,000 for a 20% partnership interest in an activity in which she works full time. The partnership reports losses of $300,000 in Year 1 and $150,000 in Year 2. Lena’s share of the partnership’s losses is $60,000 in Year 1 and $30,000 in Year 2. How much, if any, of Lena’s losses will be suspended?

1. No suspended losses; no at risk losses.
2. Year 1 passive losses suspended $60,000; Year 2 $20,000 passive loss suspended and $10,000 at risk suspended.
3. Year 1 no suspended losses; Year 2 $30,000 suspended for at risk.
4. Year 1 no suspended losses; Year 2 $20,000 passive loss and $10,000 suspended for at risk.

Answer 1

Answer: "Year 1 no suspended losses; Year 2 $20,000 passive loss and $10,000 suspended for at risk."

=> In the case, Lena losses are not subject to the passive loss limitations because she is a material participant in the activity and she works full time. However, with the "At-risk Rules", she can limit her losses to the invested amount in the partnership interest ie.$80,000. Thus, year 2, $10000 losses are suspended of the "At-risk Rules" limit and no other suspension of losses.

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