Question

1. Problem 6-34 (Algorithmic) (LO. 5, 6, 8)

   Five years ago, Gerald invested $186,000 in a passive activity, his sole investment venture. On January 1, 2017, his amount at risk in the activity was $37,200. His shares of the income and losses were as follows:

   Year Income (Loss) 2017 ($55,800) 2018 (37,200) 2019 57,200

   Gerald holds no suspended at-risk or passive activity losses at the beginning of 2017.

   If an answer is zero, enter "0".

   a. If losses were limited only by the at-risk rules, how much can Gerald deduct in 2017 and 2018?

   Year Loss Allowed Suspended 2017 ($55,800) $ $ 2018 ($37,200) Total $

   b. Refer to the information in part (a) above. Assuming Gerald has $57,200 income in 2019, what is his taxable income from the activity in 2019 under at-risk rules?
   $

   c. If losses were limited by the at-risk and passive activity loss rules, how much would Gerald be able to deduct in 2017 and 2018?

   2017: $

   2018: $

   d. Assuming Gerald has $57,200 income in 2019, (and considering both at-risk and passive activity loss rules), what is the amount of Gerald's suspended passive activity losses at the end of 2019? $

   At the end of 2019, what is the amount of Gerald's adjusted basis in the activity?
   $

Answer 1

Solution:

(A)

Year	Loss	Allowed	Disallowed	Working
2017	($55,800)	$37,200	$18,600	($55,800 - $37,200)
2018	($37,200)	$0	$37,200	($37,200 - $0)
Total			$55,800

HINT : The amount will be more than $37,200 only deduction or set off would be available.

(B)

Particulars	Amount	Working
Total income for the year 2019	$57,200
Less: Carry forward for the year 2017	$18,600	($55,800 - $37,200)
Carry forward for the year 2018	$37,200	($37,200 - $0)
Taxable income	$1,400

(C)

If losses were limited by the risk and passive loss rules:

Particulars	Amount
Deductible amount in the year 2018	$0
Deductible amount in the year 2017	$0

(D)

Particulars	Amount
Passive income for the year 2019	$57,200
Less : Allowed amount for 2017	$37,200
Suspended Passive activity loss	$20,000

Particulars	Amount
Passive income for the year 2019	$57,200
Less : Total losses were limited(Disallowed amount)	$55,800
Adjusted basis in the activity	$1,400