The end of the year is approaching, and Maxine has begun to focus on ways of minimizing her income tax liability. Several years ago, she purchased an investment in Teal Limited Partnership, which is subject to the at-risk and the passive activity loss rules. (Last year, Maxine sold a different investment that was subject to these rules and that produced passive income.) She believes that her investment in Teal has good long-term economic prospects. However, it has been generating tax losses for several years in a row. In fact, when she was discussing last year's income tax return with her tax accountant, he said that unless "things change" with respect to her investments, she would not be able to deduct losses this year.
a. What was the accountant referring to in his comment?
b. You learn that Maxine's current at-risk basis in her investment is $1,000 and that her share of the current loss is expected to be $13,000. Based on these facts, how will her loss be treated?
c. After reviewing her situation, Maxine's financial adviser suggests that she invest at least an additional $12,000 in Teal to ensure a full loss deduction in the current year.
How do you react to his suggestion?
d. What would you suggest Maxine consider as she attempts to maximize her current year deductible loss?

  • CreatedMay 25, 2015
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