ExpertHard1 markMultiple Choice
CPA · Question 02 · Area 1: Individual Tax
A taxpayer has the following income and losses for Year 1:<br/>- Salary: $200,000<br/>- Interest Income: $5,000<br/>- Loss from Partnership A (Material Participant): ($30,000)<br/>- Loss from Partnership B (Passive Activity): ($40,000)<br/>- Income from Partnership C (Passive Activity): $15,000<br/>- Active Rental Real Estate Loss: ($28,000)<br/><br/>The taxpayer's Modified Adjusted Gross Income (MAGI) before passive losses is $140,000. What is the total amount of losses deductible against the taxpayer's ordinary income (Salary and Interest) for Year 1?
A taxpayer has the following income and losses for Year 1:<br/>- Salary: $200,000<br/>- Interest Income: $5,000<br/>- Loss from Partnership A (Material Participant): ($30,000)<br/>- Loss from Partnership B (Passive Activity): ($40,000)<br/>- Income from Partnership C (Passive Activity): $15,000<br/>- Active Rental Real Estate Loss: ($28,000)<br/><br/>The taxpayer's Modified Adjusted Gross Income (MAGI) before passive losses is $140,000. What is the total amount of losses deductible against the taxpayer's ordinary income (Salary and Interest) for Year 1?
Answer options:
A.
$30,000
B.
$40,000
C.
$58,000
D.
$83,000
How to approach this question
1. Identify activity types: Active (Salary, Partnership A), Portfolio (Interest), Passive (Partnership B, C, Rental).<br/>2. Net Passive Activities: Partnership B ($40k) + Partnership C $15k = ($25k) Net Passive Loss. Suspended.<br/>3. Rental Real Estate Exception (Mom & Pop): Max $25,000 deduction.<br/>4. Calculate Phase-out: Reduced by 50% of MAGI over $100,000.<br/>5. Sum deductible losses.
Full Answer
B.$40,000✓ Correct
.
Common mistakes
Ignoring the MAGI phase-out for rental real estate or failing to net passive income against losses before applying the exception.
Practice the full CPA TCP Practice Exam
68 questions · hints · full answers · grading
More questions from this exam
Q01An individual taxpayer, filing single, exercised 1,000 Incentive Stock Options (ISOs) in Year 1 w...HardQ03In Year 1, a taxpayer donates a piece of artwork to a public charity (50% limit organization). Th...HardQ04A taxpayer has $10,000 of investment interest expense in Year 1. They have the following income i...MediumQ05A single taxpayer has the following financial profile for Year 1:<br/>- Wages: $180,000<br/>- Net...MediumQ06A taxpayer had a Year 1 tax liability of $100,000 and Adjusted Gross Income (AGI) of $160,000. In...Medium