Rachel acquired a passive activity several years ago.Until 2016, the activity was profitable, and Rachel's at-risk amount at the beginning of 2016 was $300,000.The activity produced losses of $80,000 in 2016, $50,000 in 2017, and $70,000 in 2018.In 2019, the activity produced income of $90,000.How much is Rachel's suspended passive activity loss at the beginning of 2020?

Question

Quizplus · Accepted Answer

When the activity was profitable until 2016, Rachel's at-risk amount at that point would have been used to offset any income from the activity. Since the activity produced losses in 2016, 2017, and 2018, the at-risk amount would have been reduced by the amount of those losses. Therefore, at the beginning of 2019, Rachel's at-risk amount would have been $300,000 - $80,000 - $50,000 - $70,000 = $100,000.

In 2019, the activity produced income of $90,000, which would have been used to offset some of the remaining passive losses. The combined amount of unused losses at the end of 2018 and any 2019 losses that couldn't be offset by the 2019 income is Rachel's suspended passive activity loss at the beginning of 2020.

So, the suspended passive losses at the beginning of 2020 are $60,000 ($50,000 + $10,000 from the 2019 income that couldn't be offset by the 2019 losses).

Therefore, choice B is correct.

Rachel Acquired a Passive Activity Several Years Ago