Question

Rhonda owns an interest in a limited partnership (a passive activity), and her share of the...

Rhonda owns an interest in a limited partnership (a passive activity), and her share of the partnership's loss is $26,000. Her tax basis in the partnership is $27,000, and her at-risk amount is $21,000. In addition to the loss from the partnership, Rhonda has $60,000 of income from her salary, $2,000 of interest from corporate bonds, and $29,000 of income from another limited partnership (a passive activity). What amount of the partnership loss may Rhonda deduct in the current year?

Multiple Choice

  • $21,000, which is her at-rist basis

  • $29,000, which is the amount of her passive income

  • $26,000 because her passive income exceeds her passive loss

  • $27,000, which is her tax basis

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Answer #1

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As per passive activity loss rules, loss from passive activities cannot be deducted from ordinary income. Passive activities loss can be fully deducted from other passive activity income. however if loss exceeds the other passive activity income, it can be carried forward.

So in our case other passive activity income is higher than passive activity loss. So entire $26,000 can be deducted.

So correct answer is option C.

$26,000 because her passive income exceeds her passive loss.

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