ExpertHard1 markMultiple Choice
CPA · Question 11 · Area I: Individual Compliance and Planning
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?
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:
A.
$0
B.
$10,000
C.
$15,000
D.
$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). <br/>Total Passive Income = $20,000. <br/>Total Passive Loss = $40,000 ($10k + $30k). <br/>Net Passive Loss to Suspend = $20,000. <br/>Allocation ratio for C: Loss C / Total Losses = $30,000 / $40,000 = 75%. <br/>Suspended Loss for C = $20,000 * 75% = $15,000.
Common mistakes
Allocating based on total activity value or equally.
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