Molly Grey (single) acquired a 30 percent limited partnership interest in Beau G

Question

Molly Grey (single) acquired a 30 percent limited partnership interest in Beau Geste LLP several years ago for $49,000. At the beginning of year 1, Molly has tax basis and an at-risk amount of $30,500. In year 1, Beau Geste incurs a loss of $228,000 and does not make any distributions to the partners. In year 1, Molly's AGI (excluding any income or loss from Beau Geste) is $79,400. This includes $12.000 of passive income from In year 2, Beau Geste earns income of $30,500. In addition, Molly contributes an additional $33,850 to Beau Geste during year other passive activities. 2. Molly's AGI in year 2 is $85,100 (excluding any income or loss from Beau Geste). This amount includes $8,760 in income from her other passive investments b. Based on the above information, complete the following table: Complete this question by entering your answers in the tabs below. Req B1 What are the cumulative total passive suspended losses at the end of year 2? umulative total passive suspended losses Req B2 Req B1 Req B2>

Explanation / Answer

At-risk allowed loss calculation Year Total Loss At-Risk Allowed At-Risk Disallowed 1 $68,400 $30,500 $37,900 2 $37,900 $37,900 $0 Year 1 Total loss = $228,000 x 30% = $68,400 In year 2, Molly’s at-risk amount increases by the amount of her contribution ($33,850) and by the income generated by Beau Geste to $43000 ($33,850 + ($30,500 x 30%)) before considering any losses from Beau Geste. This additional at-risk amount will allow Molly to use up to $43,000 of losses suspended by the at-risk rules in previous years. As a result, the $37,900 of losses suspended in year 1 now flow to the passive activity loss rules. Passive activity loss allowed calculation: At-Risk Allowed PAL Allowed PAL Disallowed Year 1 $30,500 $12,000 $18,500 2 $37,900 $17,910 $38,490 $18,500 She has $17,910 ($30,500 x 30% = $9,150 from Beau Geste and $8,760 from other sources) of passive income she may deduct $17,910 of the total $56,400 losses in year 2. This leaves $38,490 of losses that remain suspended under the passive activity loss rules at the end of year 2 Cumulative losses that remain suspended under the passive activity loss rules at the end of year 2 $38,490 Molly's AGI year 2 AGI before Beau Geste: $85,100.00 + Year 2 passive income from Beau Geste ($30,500 x 30%) $9,150.00 - Year 2 allowed passive losses -$17,910.00 Year 2 AGI $76,340.00

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