Answer:
Step-by-step explanation:
a. How much of Apex LLC losses can Reggie deduct this year?
Reggie can deduct $120,000 of the losses from Apex LLC this year, limited by his basis in the LLC interest. The remaining $60,000 of losses will be suspended and carried forward to future years.
b. How much is suspended under each of the limitations – give the code sections and the suspended amount.
The $60,000 of suspended losses will be suspended under both the passive activity loss limitation (Section 469) and the at-risk limitation (Section 465).
c. What is the answer to "a" and "b" above if his passive income from his other investment was $200,000?
If Reggie's passive income from his other investment was $200,000, he can deduct the full $180,000 of losses from Apex LLC this year. There will be no suspended losses.
Here is the detailed explanation:
a. How much of Apex LLC losses can Reggie deduct this year?
The passive activity loss limitation (Section 469) limits the amount of passive losses that a taxpayer can deduct in a year to the amount of the taxpayer's passive income. In Reggie's case, his passive income is $40,000, so he can deduct $40,000 of the losses from Apex LLC this year. The remaining $120,000 of losses will be suspended and carried forward to future years.
The at-risk limitation (Section 465) limits the amount of losses that a taxpayer can deduct from an activity to the amount of the taxpayer's at-risk basis in the activity. In Reggie's case, his at-risk basis in Apex LLC is $90,000, so he can deduct $90,000 of the losses from Apex LLC this year. The remaining $30,000 of losses will be suspended and carried forward to future years.
However, because Reggie's passive income is $40,000, the passive activity loss limitation (Section 469) is the limiting factor, and he can only deduct $40,000 of the losses from Apex LLC this year. The remaining $120,000 of losses will be suspended and carried forward to future years.
b. How much is suspended under each of the limitations – give the code sections and the suspended amount.
The $120,000 of suspended losses will be suspended under both the passive activity loss limitation (Section 469) and the at-risk limitation (Section 465). The code sections for these limitations are:
Passive activity loss limitation: Section 469
At-risk limitation: Section 465
The suspended amount is $120,000.
c. What is the answer to "a" and "b" above if his passive income from his other investment was $200,000?
If Reggie's passive income from his other investment was $200,000, he can deduct the full $180,000 of losses from Apex LLC this year. There will be no suspended losses.
This is because the passive activity loss limitation (Section 469) will not be a limiting factor, as Reggie's passive income is greater than the losses from Apex LLC. Therefore, he can deduct the full $180,000 of losses from Apex LLC this year.