Question

Wes's at-risk amount in a passive activity is $25,000 at the beginning of the current year. His current loss from the activity is $35,000 and he has no passive activity income. At the end of the current year, which of the following statements is incorrect?

a. Wes has a loss of $25,000 suspended under the passive loss rules.
b. Wes has an at-risk amount in the activity of $0.
c. Wes has a loss of $10,000 suspended under the at-risk rules.
d. Wes has a loss of $35,000 suspended under the passive loss rules.
e. None of the above is incorrect.

Answer 1

Option A is correct one.

Wes has a loss of $25,000 suspended under the passive loss rules.

Step-by-step explanation:

Wes has no passive income. The measure of inactive misfortunes restricted by in danger impediment rules (which would be $25,000) must be set-off just against the easy revenue. As Wes has not earned any easy revenue during the year, the whole measure of $25,000 (as restricted by in danger confinement rules) will get suspended under the latent misfortune rules. Before applying latent movement rules, it is important to apply in risk limitation rules.