ExpertHard1 markMultiple Choice
CPA · Question 45 · Area IV: Individual Taxation
A taxpayer had the following income and losses for the year: Salary $50,000; Passive Activity Income $10,000; Passive Activity Loss ($15,000); Active Business Loss ($5,000). What is the taxpayer's Adjusted Gross Income (AGI)?
A taxpayer had the following income and losses for the year: Salary $50,000; Passive Activity Income $10,000; Passive Activity Loss ($15,000); Active Business Loss ($5,000). What is the taxpayer's Adjusted Gross Income (AGI)?
Answer options:
A.
$40,000
B.
$50,000
C.
$45,000
D.
$55,000
How to approach this question
Passive losses only offset passive income. Active losses offset any income.
Full Answer
C.$45,000✓ Correct
C
Passive activity losses (PALs) can only offset passive activity income. The $15,000 loss offsets the $10,000 income; the remaining $5,000 PAL is suspended. The active business loss of $5,000 is fully deductible against the salary. AGI = $50,000 - $5,000 = $45,000.
Common mistakes
Deducting the excess passive loss against salary.
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