ExpertMedium1 markMultiple Choice
CPA · Question 59 · Area I: Individual Compliance and Planning
A taxpayer has a $100,000 loss from a business activity. They materially participate in the activity. Their 'at-risk' amount is $40,000. How much loss is deductible?
A taxpayer has a $100,000 loss from a business activity. They materially participate in the activity. Their 'at-risk' amount is $40,000. How much loss is deductible?
Answer options:
A.
$100,000
B.
$40,000
C.
$0
D.
$60,000
How to approach this question
Ordering: 1. At-Risk Limit ($40k). 2. Passive Limit (N/A due to material participation). Result: $40k deductible.
Full Answer
B.$40,000✓ Correct
IRC §465. Losses are limited to the amount the taxpayer has 'at risk' in the activity. The excess ($60,000) is suspended and carried forward.
Common mistakes
Ignoring at-risk rules because the activity is 'active' (material participation). At-risk applies to active businesses too.
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