Art's at-risk amount in a passive activity was $60,000 at the beginning of 2017. His loss from the activity in 2017 is $80,000, and he had no passive activity income during the year. Art had $20,000 of passive activity income from the activity in 2018. Under the passive activity loss rules, Art's suspended loss at the end of 2018 is:
A) $15,000.
B) $20,000.
C) $45,000.
D) $60,000.
E) None of the above.

Question

Quizplus · Accepted Answer

Under the passive activity loss rules, any passive activity losses that are not currently deductible because of the at-risk or passive activity limitations become suspended losses. These suspended losses can be carried forward and used to offset passive activity income in future years or any gain from the sale of the activity.

In this case, Art had $80,000 of loss in 2017 in a passive activity where his at-risk amount was $60,000. This means that $20,000 of the loss was not currently deductible due to the at-risk limitation and became a suspended loss.

In 2018, Art had $20,000 of passive activity income from the same activity. He can use this income to offset some of the suspended loss from the previous year, leaving a remaining suspended loss of $60,000 ($80,000 loss in 2017 - $20,000 passive activity income in 2018). Therefore, the answer is D: $60,000.

Art's At-Risk Amount in a Passive Activity Was $60,000 at the Beginning