[Anonymous]

In the current year, a taxpayer reports the following items:

Salary $50,000

Income from partnership A, in which the taxpayer materially participates 20,000

Passive activity loss from partnership B (40,000)

During the year, the taxpayer disposed of the interest in partnership B, which had a suspended loss carryover of $10,000 from prior years. What is the taxpayer’s adjusted gross income for the current year?

A. $20,000

B. $30,000

C. $60,000

D. $70,000

A. In the year that a passive activity is sold the suspended passive losses are released and can offset all types of income. Therefore, the $40,000 current loss and $10,000 suspended loss from partnership B can both be used to offset the other income ($50,000 + $20,000 – $40,000 – $10,000 = $20,000).

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The answer explains that you can deduct the suspended passive loss of 10,000, but why can you also deduct the current year passive loss of 40,000, since you can only deduct it to the extent of passive gains, which is only 20,000?

[TargetCPA]

From my understanding, the passive loss that wasn't deducted carries forward to the current tax return.

Passive losses continue to carry forward until you either have passive income to use the losses or you dispose of your ownership interest.

In the year you dispose of your ownership interest, all passive losses including carryovers are deducted.

AUD - NINJA in Training
BEC - NINJA in Training
FAR - NINJA in Training
REG - NINJA in Training

BEC-78(Expired),68,71,69,74
REG-Waiting for score
AUD-
FAR-

[TargetCPA]

From my understanding, the passive loss that wasn't deducted carries forward to the current tax return.

Passive losses continue to carry forward until you either have passive income to use the losses or you dispose of your ownership interest.

In the year you dispose of your ownership interest, all passive losses including carryovers are deducted.

AUD - NINJA in Training
BEC - NINJA in Training
FAR - NINJA in Training
REG - NINJA in Training

BEC-78(Expired),68,71,69,74
REG-Waiting for score
AUD-
FAR-

[CPA soon]

Well as Targetcpa indicated, the 10K is carryover from prior years, while the 40k is from current year. Since the taxpayer disposed of its interest, in the year of disposal you can offset passive against other income.

FAR - 71, 68, 74, (8/31/14) 78 ✔
REG - 67, 71, 71, (10/18/14) 78 ✔
BEC - (11/29/14) 86 ✔
AUD - 73, (4/4/15) 86 ✔

I can't believe this is over! 2 years and 3 months..

[CPA soon]

Well as Targetcpa indicated, the 10K is carryover from prior years, while the 40k is from current year. Since the taxpayer disposed of its interest, in the year of disposal you can offset passive against other income.

FAR - 71, 68, 74, (8/31/14) 78 ✔
REG - 67, 71, 71, (10/18/14) 78 ✔
BEC - (11/29/14) 86 ✔
AUD - 73, (4/4/15) 86 ✔

I can't believe this is over! 2 years and 3 months..

[gt5717b]

In the year you dispose of a passive activity, you can realize any current or carryover passive losses. Basically, they accumulate until you have passive gains or you dispose of it. I don't believe passive income from A can offset passive losses from B.

REG - 89
FAR - 84
AUD - 73, 86
BEC - 89

GA Licensed CPA

[gt5717b]

In the year you dispose of a passive activity, you can realize any current or carryover passive losses. Basically, they accumulate until you have passive gains or you dispose of it. I don't believe passive income from A can offset passive losses from B.

REG - 89
FAR - 84
AUD - 73, 86
BEC - 89

GA Licensed CPA

[LaxCPA]

Partnership A is not passive income. Like others have said In the year you dispose of your ownership interest, all passive losses including carryovers are deducted. If the taxpayer would not have sold partnership B, AGI would have been 70,000 with a 50,000 passive loss carryover.

[LaxCPA]

Partnership A is not passive income. Like others have said In the year you dispose of your ownership interest, all passive losses including carryovers are deducted. If the taxpayer would not have sold partnership B, AGI would have been 70,000 with a 50,000 passive loss carryover.

[Author]

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