Rita earns a salary of $150,000, and invests $40,000 for a 20% interest in a passive activity. Operations of the activity result in a loss of $250,000, of which Rita’s share is $50,000. How is her loss characterized?
a.
$40,000 is suspended under the passive activity loss rules and $10,000 is suspended under the at-risk rules.
b.
$40,000 is suspended under the at-risk rules and $10,000 is suspended under the passive activity loss rules.
c.
$50,000 is suspended under the passive activity loss rules.
d.
$50,000 is suspended under the at-risk rules.
I want to know which is the correct answer and why. I chosed B, but it was wrong.