Question

List some events that increase or decrease an investor's at-risk amount. What are some strategies that a taxpayer can employ to increase the at-risk amount to claim a higher deduction for losses?

Please explain.

Answer 1

What increases at-risk amount: - increases in liability - the amount of cash borrowed - the contribution made in cash - the share of the activity's income.

What decreases at-risk amount: - the share of the activity's loss - the withdrawal of cash and the adjusted basis activity of property from the activity

Upon a taxable disposition of a passive activity, the taxpayer can utilize any suspended losses and credits related to that activity. Do you agree? Explain.

Disagree. Upon disposition of a passive activity, a taxpayer's suspended losses offset passive activity income, gain on disposition of the activity, or nonpassive activity (active or portfolio) income. However, suspended credits only offset tax on passive activity income. Credits that cannot be used in this manner are lost to the taxpayer.