Chuck, an individual, has three separate passive activities and an at-risk amoun

Question

Chuck, an individual, has three separate passive activities and an at-risk amount in excess of $40,000 for cash. During the year, the activities produced the following of net income (loss):

Activity 1: ($40,000)

Activity 2 : ($10,000)

Activity 3 : $30,000

Net passive loss: ($20,000)

Chuck's suspended losses for the current year are as follows:

a. Activity 1: 40,000     Activity 2: 10,000

b. Activity 1: 10,000     Activity 2: 10,000

c. Activity 1: 16,000     Activity 2: 4,000

d. Activity 1: 4000     Activity 2: 16,000

e. Activity 1: 0     Activity 2: 0

Explanation / Answer

Ans) 1) Passive Activity:Passive activity involves those activities in which taxpyer not materially participate. 2) Passive Activity Loss Rules: It prohoibits offset the passive losses from income producing activities. 3) If net passive losses arise,they are not lost but carried forward. 4) If Suspended losses are not deductible in any given year,the amount of suspended losses of each passive activity is carried forward on pro-data basis. 5) The portion of net loss suspended and carried forward to be ratio of net losses from that activity to the total net losses from all passive activities for the year Chunk's Suspended losses for current year Ratio= Activity 1=-40000/(-40000-10000) 0.8 Activity 2=-10000/(-40000-10000) 0.2 Ans (c ) Activity 1 Net Passive loss* suspended loss ratio=(-20000*.80) $ (16,000.00) Activity 2 Net Passive loss* suspended loss ratio=(-20000*.20) $   (4,000.00)

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