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13 July, 15:21

Sarah has investments in four passive activity partnerships purchased several years ago. Last year the income and losses were as follows: Activity Income (Loss) A $30,000 B (30,000) C (15,000) D (5,000) In the current year, she sold her interest in Activity D for a $10,000 gain. Activity D, which had been profitable until last year, had a current loss of $1,500. Answer the following questions to determine how the sale of Activity D affects Sarah's taxable income in the current year. a. The amount of suspended losses carried forward to the year of the sale is $. b. What amount of the suspended losses is allocated to Activity D? $ c. How much, if any, of this net gain may be used to absorb passive activity losses from other activities? $

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  1. 13 July, 15:34
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    In last year, Sarah couldn't deduct anything against non passive income and need to allocate the $20,000 net loss between the three loss activities.

    Activity Income (Loss)

    A 30,000

    B (30,000)

    C (15,000)

    D (5,000)

    Net Passive Loss (20,000)

    Allocation of net passive loss to Activity B, C and D.

    Activity B (30/50 * $20,000) ($12,000)

    Activity C (15/50 * $20,000) ($6,000)

    Activity D (5/50 * $20,000) ($2,000)

    Suspended losses Total ($20,000)

    In current year, Sarah has a net gain of $10,000 from sale of Activity D. Sarah can set off $2,000 suspended loss from the activity and the current year's loss of $1,500 from activity across $10,000 gain. Further, the balancing net gain of $6,500 (10,000-2,000 - 1,500) from the sale may be utilized to cover passive losses from the other activities.
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