11-50 Grace acquired an activity four years ago. The loss from the activity is $
ID: 3195902 • Letter: 1
Question
11-50 Grace acquired an activity four years ago. The loss from the activity is $50,000 in the current year (at-risk basis of $40,000 as of the beginning of the year). Without considering the loss from the activity, she has gross income of $140,000. If the activity is a convenience store and Grace is a material participant, what is the effect of the activity on her taxable income
11-50 Grace acquired an activity four years ago. The loss from the activity is $50,000 in the current year (at-risk basis of $40,000 as of the beginning of the year). Without considering the loss from the activity, she has gross income of $140,000. If the activity is a convenience store and Grace is a material participant, what is the effect of the activity on her taxable income
Beginning at Risk Balance Investment Less Loss Ending at risk Deduction allowed Gross Income Deduction allowed Taxable IncomeExplanation / Answer
The at risk basis at the beginning of the year is $40000.
Therefore, Grace may deduct $40000 of the $50000 loss due to the "at risk" rules.
Thus, $10000 is suspended.
Therefore, Grace’s income for tax purposes is $100000 ($140000 - $40000).
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