Wes's at-risk amount in a passive activity is $25,000 at the beginning of the current year. His current loss from the activity is $35,000 and he has no passive activity income. At the end of the current year, which of the following statements is incorrect?
A) Wes has a loss of $25,000 suspended under the passive activity loss rules.
B) Wes has an at-risk amount in the activity of $0.
C) Wes has a loss of $10,000 suspended under the at-risk rules.
D) Wes has a loss of $35,000 suspended under the passive activity loss rules.
E) None of the above is incorrect.

Question

Quizplus · Accepted Answer

Wes has a loss of $25,000 suspended under the passive activity loss rules because his at-risk amount is only $25,000. He does not have an at-risk amount in the activity of $0 because his at-risk amount is still $25,000. He also does not have a loss of $10,000 suspended under the at-risk rules because his current loss exceeds his at-risk amount. Therefore, option D is incorrect because it suggests that the full loss of $35,000 is suspended under passive activity loss rules, while in reality, it is only $25,000.

Wes's At-Risk Amount in a Passive Activity Is $25,000 at the Beginning