Answer:
a. Given that
Basis before loss allocation $30,000
Loss allocation is $40,000
Thus, $10000 (40000 - 30000) is limited by tax basis and will be carried over to the following year.
b. Amount not at risk does not include non recourse financing that limits the losses of taxpayers. Thus, of the $30000 not already limited by Alfonso tax basis, $24000 is at risk amount only ( 30000 - 6000 nonrecourse debt). Therefore, amount remaining after tax basis and at risk limitations is $24,000 and then $6000 at risk carryover.
c. $23,000 passive activity loss carryover as a result of $1000 passive income from other sources deducted from the $24000 loss remaining after tax basis and at risk limitations (24000 - 1000).
a. Loss limited by his tax basis $10,000
Share of loss $40,000
less: Tax Basis $30,000
Loss limited by $10,000
This means that $10,000 is limited by tax basis and will be carried over to the following year.
b. Loss limited by at-risk amount $6,000
We need to compute at-risk amount.
At-risk amount
= Tax basis - nonrecourse
= $30,000 - $6,000
= $24,000
Then,
At risk limitation
= At-risk amount - share of loss
= $ 24,000 - $40,000
= $16,000
Therefore,
loss limited at risk amount
= At risk limitation - the loss already limited by tax basis
= $16,000 - $10,000
= $6,000
c. Loss limited by passive activity loss rules $23,000
= At-risk amount limitation - passive income
= $24,000 - $1,000
= $23,000
It therefore means that $23,000 passive activity loss is carryover as a result of $1,000 passive income from other sources deducted from the $24,000 loss balance after taking into consideration tax basis and at risk limitations.
