Pamela earns a yearly salary of $150,000. During year 1 she invested $80,000 for
ID: 2711593 • Letter: P
Question
Pamela earns a yearly salary of $150,000. During year 1 she invested $80,000 for a 20% interest in a passive activity. In addition, her share of the activity’s nonrecourse debt is $20,000. Operations of the activity in year 1 resulted in a loss of $500,000, of which Pamela’s share is $100,000. She has income for year 1 from another passive activity in the amount of $5,000.
For year 1, what is Pamela’s deductible loss under the tax basis rules, suspended loss under the tax basis rules, deductible loss under the at risk rules, suspended loss under the at risk rules, and deductible loss under the passive activity loss rules, and suspended loss under the passive activity loss rules?
Explanation / Answer
Deductible loss under the tax basis rules
loss from Operations of the activity $100,000
salary $150000
interest on investment ( $80,000 * 20%) $16000
nonrecourse debt $20,000
income from another passive activity $5000
The loss from operations of the activity can not be adjusted against salary.
however, they can be adjusted against other incomes i.e. 16000+5000+20000 =41000
therefore, deductible loss under the tax basis rules =41000
suspended loss under the tax basis rules
total loss from operations $100000
-deductible loss under tax rules $41000
=suspended loss under tax basis rules $59000
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