CH.9 Q.62

Farell is a member of Sierra Vista LLC. Although Sierra Vista is involved in a number of different business ventures, it is not currently involved in real estate either as an investor or as a developer. On January 1, year 1, Farell has a $201,000 tax basis in his LLC interest that includes his $188,000 share of Sierra Vistas general debt obligations. By the end of the year, Farells share of Sierra Vistas general debt obligations has increased to $201,000. Because of the time he spends in other endeavors, Farell does not materially participate in Sierra Vista. His share of the Sierra Vista losses for year 1 is $226,000. As a partner in the Riverwoods Partnership, he also has year 1, Schedule K-1 passive income of $10,000. Farrell is single and has no other sources of business income or loss. Assume CARES Act applies. (Leave no answer blank. Enter zero if applicable.)

A) Determine how much of the Sierra Vista loss Farell will currently be able to deduct on his tax return for year 1. List the losses suspended due to tax-basis, at-risk, and passive activity loss limitations.

Deductible loss	$
Loss suspended by tax basis limitation	$
Loss suspended by at-risk limitation	$
Losses suspended by passive activity loss limitation	$

B) Assume Farells Riverwoods K-1 indicates passive income of $26,000.

Determine how much of the Sierra Vista loss he will ultimately be able to deduct on his tax return for year 1.List the losses suspended due to tax-basis, at-risk, and passive activity loss limitations.

Deductible loss	$
Loss suspended by tax basis limitation	$
Loss suspended by at-risk limitation	$
Losses suspended by passive activity loss limitation	$

C) Assume Farell is deemed to be an active participant in Sierra Vista. Determine how much of the Sierra Vista loss he will ultimately be able to deduct on his tax return for year 1. List the losses suspended due to tax-basis, at-risk, and passive activity loss limitations.

Deductible loss	$
Loss suspended by tax basis limitation	$
Loss suspended by at-risk limitation	$
Losses suspended by passive activity loss limitation	$

D. Assuming Farell is deemed to be an active participant in Sierra Vista and he has a $280,500 loss from a sole proprietorship, determine how much total trade or business loss Farell will deduct on his return in year 1.

Loss deductible: $