In 2019, Emily invests $120,000 in a limited partnership that is not a passive activity. During 2019, her share of the partnership loss is $90,000. In 2020, her share of the partnership loss is $50,000. How much can Emily deduct in 2019 and 2020?
What will be an ideal response?
Although the passive activity loss rules do not apply, the at-risk rules limit Emily’s deductions. She can deduct $90,000 in 2019 and her at-risk amount will be reduced to $30,000 ($120,000 – $90,000 deducted). She will be limited to a $30,000 deduction in 2020 unless she increases her amount at risk. For example, if Emily invests an additional $20,000 in 2020, her at-risk amount would be $50,000 ($30,000 balance + $20,000 additional investment), and she would be able to deduct the entire $50,000 loss in 2020.
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