Question

1. Sandra acquired a passive activity three years ago. Until last year, the activity was profitable and her at-risk amount was $120,000. Last year, the activity produced a loss of $100,000 and, in the current year, the loss is $50,000. Assuming Sandra has received no passive income in the current or previous year, her suspended loss (under the passive activity loss provisions) as of the end of the current year is:

a. $150,000

b. $120,000

c. $30,000

d. $0

e. None of these

Answer 1

Answer: c

It should be $30,000.

At-risk amount at the end of the last year = Unadjusted at-risk amount – Loss

                                                                     = 120,000 – 100,000

                                                                     = $20,000

At-risk at the end of current year = At-risk amount of last year – Further loss

                                                       = 20,000 – 50,000

                                                       = -$30,000

The negative amount of at-risk indicates the suspended loss.