A taxpayer invested ,000 in a partnership (passive activity). In Year 1, their share of the loss was ,000. They had no other passive income. What is the suspended loss due to the At-Risk rules and the Passive Activity rules respectively?

Answer options:

At-Risk Suspended: ,000; Passive Suspended: 0

At-Risk Suspended: 0; Passive Suspended: ,000

At-Risk Suspended: ,000; Passive Suspended: ,000

How to approach this question

Ordering Rules: 1. Tax Basis 2. At-Risk 3. Passive. You can't suspend a loss under passive rules if it didn't clear the at-risk hurdle first.

Full Answer

C.At-Risk Suspended: ,000; Passive Suspended: ,000✓ Correct

Losses are first limited to the at-risk amount. ,000 loss vs ,000 at-risk = ,000 allowed, ,000 suspended at-risk. The ,000 allowed is then tested against passive income. Since 0 passive income, the ,000 is suspended as a passive loss.

Common mistakes

Applying passive limits before at-risk limits.

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