CFP

Passive Activity And At-Risk Rules - Answer Key

1. C

Because Walter is a material participant, he can deduct $30,000 of the loss against his initial investment in the first year. The remaining $10,000 loss can be carried forward and used when the "at-risk" provisions allow the deduction.

2.
A

Julie has AGI exceeding the $150,000 phase out limits; therefore, none of the loss is deductible.

3.
A

Losses from non-publically traded partnerships cannot be used to offset income from publically traded partnerships.

4.
C

Because Barbara's investment in the passive activity was $50,000, she will have a $50,000 suspended loss under the passive loss rules. The remaining $20,000 falls under the at-risk rules.


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