ExpertHard1 markMultiple Choice
CPA · Question 06 · Area I: Individual Compliance and Planning
In Year 1, a taxpayer has the following income and losses:<br/>- Salary: $120,000<br/>- Income from Partnership A (Material Participant): $15,000<br/>- Loss from Partnership B (Passive Activity): ($25,000)<br/>- Income from Partnership C (Passive Activity): $8,000<br/>- Active Rental Real Estate Loss: ($10,000)<br/>The taxpayer's Modified Adjusted Gross Income (MAGI) is $90,000. What is the taxpayer's total taxable income for Year 1?
In Year 1, a taxpayer has the following income and losses:<br/>- Salary: $120,000<br/>- Income from Partnership A (Material Participant): $15,000<br/>- Loss from Partnership B (Passive Activity): ($25,000)<br/>- Income from Partnership C (Passive Activity): $8,000<br/>- Active Rental Real Estate Loss: ($10,000)<br/>The taxpayer's Modified Adjusted Gross Income (MAGI) is $90,000. What is the taxpayer's total taxable income for Year 1?
Answer options:
A.
$108,000
B.
$125,000
C.
$135,000
D.
$117,000
How to approach this question
Classify income buckets: Active (Salary, P-ship A), Passive (P-ship B, P-ship C), Portfolio. Net passive losses against passive income. Apply the $25,000 rental real estate exception if MAGI < $100k.
Full Answer
B.$125,000✓ Correct
B
IRC §469. Passive bucket: ($25,000) loss + $8,000 income = ($17,000) net passive loss suspended. Active bucket: $120,000 salary + $15,000 P-ship A income = $135,000. Rental Real Estate Exception: Since MAGI ($90k) < $100k, the $10,000 active rental loss is fully deductible against active income. Total Taxable: $135,000 - $10,000 = $125,000.
Common mistakes
Deducting net passive loss against salary; forgetting the $25k rental exception; misclassifying material participation income as passive.
Practice the full CPA TCP Practice Exam 5
68 questions · hints · full answers · grading
More questions from this exam
Q01In Year 1, an executive is granted an Incentive Stock Option (ISO) to purchase 1,000 shares of co...MediumQ02A taxpayer has a $500,000 interest-free loan from their employer outstanding for the entire Year ...MediumQ03A taxpayer wants to donate stock held for 5 years to a public charity. The stock has an adjusted ...MediumQ04An individual taxpayer had an AGI of $160,000 in Year 1 and a tax liability of $30,000. In Year 2...MediumQ05A taxpayer invests $50,000 cash for a 20% interest in a partnership. The partnership takes out a ...Hard