Pamela earns a yearly salary of $150,000. During year 1 she invested $80,000 for

Question

Pamela earns a yearly salary of $150,000. During year 1 she invested $80,000 for a 20% interest in a passive activity. In addition, her share of the activity’s nonrecourse debt is $20,000. Operations of the activity in year 1 resulted in a loss of $500,000, of which Pamela’s share is $100,000. She has income for year 1 from another passive activity in the amount of $5,000. For year 1, what is Pamela’s deductible loss under the tax basis rules, suspended loss under the tax basis rules, deductible loss under the at risk rules, suspended loss under the at risk rules, and deductible loss under the passive activity loss rules, and suspended loss under the passive activity loss rules?

Explanation / Answer

Deductible loss under the tax basis rules is $100,000

suspended loss under the tax basis rules will be $15,000

deductible loss under the at risk rules is $85000

$80,000(amount invested) will be suspended under passive loss rules

$20,000($100,000-$80,000) will be suspended loss under risk free rules

$75,000(amount invested-income other acitivity) will be suspended under passive activity loss rules

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