Question 1

In Year 1, a taxpayer invests $50,000 in a partnership activity. The taxpayer is a limited partner and does not materially participate. The partnership has no nonrecourse debt. In Year 1, the taxpayer is allocated a loss of $60,000. The taxpayer has no other passive income. How much of the loss is suspended under the at-risk rules and how much under the passive activity loss (PAL) rules?

Accepted Answer

Apply ordering rules: 1. Basis (not an issue here), 2. At-Risk, 3. Passive Activity. Loss > At-Risk amount is suspended by At-Risk. The portion allowed by At-Risk is then tested against Passive Income.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Applying PAL limits before At-Risk limits.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA TCP Practice Exam 4

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