Question

Five years ago, Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2018, his amount at risk in the activity was $30,000. His shares of the income and losses were as follows:

Year Income (Loss) 2018 ($40,000) 2019 (30,000) 2020 50,000

Gerald holds no suspended at-risk or passive activity losses at the beginning of 2018.

If an answer is zero, enter "0".

A) If losses were limited only by the at-risk rules, how much can Gerald deduct in 2018 and 2019?

Year Loss Allowed Suspended 2018 ($40,000) $ $ 2019 ($30,000) Total $

B) Refer to the information in part (a) above. If losses were limited by the at-risk and the passive activity loss rules, how much would Gerald be able to deduct in 2018 and 2019?

Of the allowable at-risk loss for 2018, Gerald may deduct $______ in 2018 due to the passive loss rules and of the allowable at-risk loss from 2019, Gerald may deduct $______ in 2019 due to the passive loss rules.

C) Assuming Gerald has $50,000 income in 2020, (and considering both at-risk and passive activity loss rules), what is the amount of Gerald's suspended losses at the end of 2020?

• Suspended under the at-risk rules: $_____
• Suspended under the passive activity loss rules: $_____

What is his taxable income for 2020? $______
At the end of 2020, what is the amount of Gerald's adjusted basis in the activity? $______

Answer 1

A) If losses were limited only by the at-risk rules, how much can Gerald deduct in 2018 and 2019?

YEAR	LOSS ($)	ALLOWED ($)	SUSPENDED ($)
2018	40,000	30,000	10,000
2019	30,000	0	30,000
TOTAL	70,000	30,000	40,000

B) Refer to the information in part (a) above. If losses were limited by the at-risk and the passive activity loss rules, how much would Gerald be able to deduct in 2018 and 2019?

Of the allowable at-risk loss for 2018, Gerald may deduct $____0__ in 2018 due to the passive loss rules and of the allowable at-risk loss from 2019, Gerald may deduct $___0___ in 2019 due to the passive loss rules.

C) Assuming Gerald has $50,000 income in 2020, (and considering both at-risk and passive activity loss rules), what is the amount of Gerald's suspended losses at the end of 2020?

• Suspended under the at-risk rules: $0
• Suspended under the passive activity loss rules: $20,000

What is his taxable income for 2020?

ANSWER: $0

At the end of 2020, what is the amount of Gerald's adjusted basis in the activity?

ANSWER : $10,000