Question 1

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?

Accepted Answer

Calculate total passive loss ($30k + $10k = $40k). Determine B's proportion ($30k / $40k = 75%). Allocate the passive income ($20k) based on that proportion.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Offsetting losses arbitrarily or equally instead of pro-rata.

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?

How to approach this question

Full Answer

Common mistakes

Practice the full CPA TCP Practice Exam 3

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