ExpertMedium1 markMultiple Choice
CPA · Question 09 · Area I: Individual Compliance and Planning
A taxpayer owns interests in three passive activities: A (Income $20,000), B (Loss $30,000), and C (Loss $10,000). The taxpayer has no other passive income. How much of the $20,000 passive income from Activity A is allocated to offset the loss from Activity B?
A taxpayer owns interests in three passive activities: A (Income $20,000), B (Loss $30,000), and C (Loss $10,000). The taxpayer has no other passive income. How much of the $20,000 passive income from Activity A is allocated to offset the loss from Activity B?
Answer options:
A.
$20,000
B.
$10,000
C.
$15,000
D.
$0
How to approach this question
Calculate total passive loss ($30k + $10k = $40k). Determine B's proportion ($30k / $40k = 75%). Allocate the passive income ($20k) based on that proportion.
Full Answer
C.$15,000✓ Correct
C
IRC §469 regulation allocation rules. Total passive loss = $40,000. Activity B represents 75% ($30k/$40k) of the loss. Therefore, Activity B absorbs 75% of the available passive income ($20,000). $20,000 * 0.75 = $15,000.
Common mistakes
Offsetting losses arbitrarily or equally instead of pro-rata.
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