Ricardo owns interests in 3 passive activities: A, B, and C. During the current year, activity A realizes income of $8,000 while activities B and C realize losses of $16,000 and $24,000, respectively. Determine the amount of suspended loss attributable to activity C.
A)$- 0 -
B)$ 8,000
C)$12,800
D)$19,200
E)$24,000

Question

Quizplus · Accepted Answer

Passive activity losses can only be used to offset passive activity income. In this case, there is $8,000 of passive activity income from activity A and a total of $40,000 ($16,000 + $24,000) in passive activity losses. Since activity C incurred the largest loss, it will be the activity with the suspended loss.

To determine the amount of suspended loss attributable to activity C, we need to compare the amount of passive activity income to the losses incurred by each activity.

For activity A: 
Passive activity income: $8,000
Loss allocated to activity A: $0 
(this means activity A did not incur any losses)

For activity B: 
Passive activity income: $0 
(this means activity B did not generate any income)
Loss allocated to activity B: $16,000

For activity C: 
Passive activity income: $0 
Loss allocated to activity C: $24,000

Since activity C is the only activity with losses that exceed passive activity income, the answer is $24,000, which is the amount of loss not currently deductible and is considered a suspended loss.

Ricardo Owns Interests in 3 Passive Activities: A, B, and C