ExpertHard1 markMultiple Choice
CPA · Question 29 · Area IV: Individual Taxation
A taxpayer has $50,000 of salary, $10,000 of passive income from a rental activity, and $25,000 of passive losses from a limited partnership interest. The taxpayer also has $5,000 of active business income. How much of the passive loss is deductible in the current year?
A taxpayer has $50,000 of salary, $10,000 of passive income from a rental activity, and $25,000 of passive losses from a limited partnership interest. The taxpayer also has $5,000 of active business income. How much of the passive loss is deductible in the current year?
Answer options:
A.
$25,000
B.
$10,000
C.
$15,000
D.
$0
How to approach this question
Passive Loss Rule: Passive losses can only offset Passive income. $25k Loss vs $10k Income. Deduct $10k. Carry forward $15k.
Full Answer
B.$10,000✓ Correct
B
IRC §469 limits the deduction of passive activity losses to the amount of passive activity income. The taxpayer has $10,000 of passive income, so $10,000 of the passive loss is deductible. The remaining $15,000 is suspended.
Common mistakes
Trying to offset active business income or salary with passive losses.
Practice the full CPA REG Practice Exam 3
72 questions · hints · full answers · grading
More questions from this exam
Q01A CPA is preparing an original tax return for a client who is claiming a refund based on a positi...HardQ02A practitioner is representing a taxpayer in an IRS examination. The taxpayer has a 25% ownership...HardQ03A tax return preparer willfully attempts to understate the tax liability on a client's return by ...HardQ04Which of the following scenarios would most likely result in the assessment of a penalty for fail...HardQ05Regarding the disciplinary authority of State Boards of Accountancy, which of the following state...Hard