Deducting the net loss


Question 1: Dorothy acquired passive Activity A in January 2001 and Activity B in September 2002. Through 2004, Activity A was profitable, but it produced losses of $200,000 in 2005 and $100,000 in 2006. Dorothy has passive income from Activity B of $20,000 in 2005 and $40,000 in 2006. After offsetting passive income, how much of the net losses may she deduct?

Question 2: Hazel has investments in two nonrental passive activities: Activity A, acquired seven years ago and profitable until the current year, and Activity B, acquired this year. Currently, Hazel's shares of the activities' losses are $10,000 from Activity A and $6,000 from Activity B. What is the total of Hazel's suspended losses from these activities?

Question 3: Bob, an attorney, earns $200,000 from his law practice in the current year. He receives $45,000 in dividends and interest during the year. In addition, he incurs a loss of $50,000 from an investment in a passive activity acquired three years ago. What is Bob's net income for the current year after considering the passive investment?

Question 4: Ray acquired an activity several years ago, and in the current year, it generated a loss of $50,000. Ray has AGI of $140,000 before considering the loss from the activity. If the activity is a bakery and Ray is not a material participant, what is his AGI?

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Accounting Basics: Deducting the net loss
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