A taxpayer has three passive activities: Activity A (Income $20,000), Activity B (Loss $10,000), and Activity C (Loss $30,000). The taxpayer has no other passive items. What is the amount of suspended loss allocated to Activity C?

Answer options:

$10,000

$15,000

$20,000

How to approach this question

1. Net all activities. 2. If Net Loss, allocate pro-rata to loss activities based on their contribution to total losses.

Full Answer

C.$15,000✓ Correct

Treas. Reg. §1.469-1T(f)(2). Total Passive Income = $20,000. Total Passive Loss = $40,000 ($10k + $30k). Net Passive Loss to Suspend = $20,000. Allocation ratio for C: Loss C / Total Losses = $30,000 / $40,000 = 75%. Suspended Loss for C = $20,000 * 75% = $15,000.

Common mistakes

Allocating based on total activity value or equally.

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