Matt has three passive activities and has at-risk amounts in excess of $100,000 for each. During the year, the activities produced the following income (losses).
Matt's suspended losses are as follows:

Question

Quizplus · Accepted Answer

To determine the allocation of suspended losses, the at-risk amounts for each activity must first be considered. Since each activity has an at-risk amount in excess of $100,000, all of the losses from each activity can potentially be used to offset other income.

From the chart, it is clear that Activity C produced income of $25,000, which is enough to absorb all of the suspended losses from that activity. Therefore, $25,000 is allocated to C and $0 to A and B.

Of the remaining losses, $12,500 must be allocated to either Activity A or B in order to bring their at-risk amounts below $100,000. Since the losses are equally split between the two activities, each is allocated $6,250. However, since Activity A produced a loss of $9,000, $6,250 of this loss can be used to offset other income, leaving a suspended loss of $2,750. Therefore, $15,000 (the remaining suspended loss for A) is allocated to A and $10,000 (the remaining suspended loss for B) is allocated to B.

Therefore, the correct answer is (C) $15,000 is allocated to A; $10,000 to B.

Matt Has Three Passive Activities and Has At-Risk Amounts in Excess