Question

Billy Bob is at risk for $10,000 in Partnership A and $22,000 in Partnership B on January 1, 2017. Both partnerships are passive activities to Billy Bob. Billy Bob’s share of net income from Partnership A during 2017 was $8,000. His share of losses from Partnership B was $12,000. What are the tax consequences to Billy Bob in 2017? How much is he as risk for each activity on January 1, 2018? Does he have any loss carryovers under the at-risk rules? Does he have any suspended losses under the passive loss rules.

Answer 1

Explanation:

Billy Bob will offset the $8,000 in passive income from Partnership A with $8,000 in losses from Partnership B. On January 1, 2017, he is at risk for $18,000 ($10,000 + $8,000) in Partnership A and $10,000 ($22,000 −$12,000) in Partnership B. He has a suspended passive loss for Partnership B of $4,000 ($12,000 − $8,000). He has no loss carryover under the at-risk rules.

At risk for A:
Original 10k
NI 8K
End At risk 18K

At risk for B
Original 22k
NL (12k)
End at risk 10k

Suspended Passive Loss:
Loss (12k)
Income 8k
P Loss 4k