Randall invested $200,000 in Activity A and $100,000 in Activity B (both passive)in 2003.At the beginning of 2017,Randall's at-risk amount was $20,000 in A and $15,000 in B.Activity A had a loss of $25,000 and Activity B had income of $30,000.What is the amount of income or loss recognized in 2017 from these activities?
A)$0.
B)$5,000 income.
C)$10,000 income.
D)$25,000 loss.

Question

Quizplus · Accepted Answer

The at-risk amount is the amount of money that can be lost in the investment. Since Activity A has a loss of $25,000 and Randall's at-risk amount is only $20,000, he can only deduct $20,000 of the loss. The excess $5,000 of the loss is carried forward to future years. Similarly, since Activity B has income of $30,000 and Randall's at-risk amount is $15,000, he can recognize the entire $15,000 of income. Therefore, the total income recognized in 2017 is $15,000 - $20,000 = $10,000.

Randall Invested $200,000 in Activity a and $100,000 in Activity