[msgolds]

Alright, so this question came up in my Becker review, and I am wondering if Becker screwed up or if I’m totally missing something here. Why would the answer be $20,000? Shouldn’t the full $50,000 from partnership A be reported as income? Which would mean the answer is 50,000, right?

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

Salary: $50,000

Income from partnership A, in which the taxpayer materially participates: $50,000

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

Explanation

Choice “a” is correct. The $50,000 salary and income from partnership activity of $20,000 are taxable. Typically, passive activity losses, whether in the current or prior years, may only be used to offset passive activity income. The exception to this is in the year the passive activity is disposed of (sold), if still unused, passive activity losses are fully deductible in the year of disposal:

Salary: $ 50,000

Income from partnership A: 20,000

A PAL from partnership B: (40,000)

Loss carryover from partnership B: (10,000)

Adjusted Gross Income: 20000

BEC - 90 PASSED
FAR - 84 PASSED
AUD - 93 PASSED
REG - 84 PASSED

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Using Becker Self-Study

"If we were put here to carry a great weight, then the very things we hate are here to build those muscles."

[ty58527]

I agree with your reasoning on this question. I googled the answer to this question and it came up with the newly released 2011 AICPA regulation questions (of which this was a part). The question had the partnership A income as $20,000. So, Becker seems to have made a clerical error. Here is the link to the released questions (page 13 has the question you posted:

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AUD - 93
BEC - 85
REG - 89
FAR - 86

I am DONE!!!!!!

[Anonymous]

I encountered this same question today, and you're right, the answer should be $50,000. Becker has posted the correction on its website:

I would recommend reading through all the corrections and updates, especially the course material updates. They can be found here:

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[msgolds]

Thanks! I just wanted to make sure I wasn't going crazy!

BEC - 90 PASSED
FAR - 84 PASSED
AUD - 93 PASSED
REG - 84 PASSED

I DID IT!!!!

Using Becker Self-Study

"If we were put here to carry a great weight, then the very things we hate are here to build those muscles."

[Anonymous]

Am I missing something?? This explanation still seems to support the original answer of $20,000. The explanation seems logical to me. Maybe I'm missing something…

Becker's “Correction”:

“In the facts for this question, the line item “Income from partnership A, in which the taxpayer materially participates” should be $20,000, not $50,000.” This is just saying that the Line Item “Income from Partnership A” should read $20K instead of $50K (which you have in your OP with the answer explanation), but doesn't change the actual amount to be included in the taxpayer's AGI. At least that's my interpretation.

[msgolds]

@BaseballCPA2, you're right. If the Income from Partnership A line item read as $20,000 rather than $50,000, then the $20,000 answer would be correct using the given information. The reason I was confused was I was thinking maybe there was some strange exclusion that made it so the taxpayer would only recognize $20,000 of the Income from Partnership A rather than the full $50,000 that I didn't know about.

BEC - 90 PASSED
FAR - 84 PASSED
AUD - 93 PASSED
REG - 84 PASSED

I DID IT!!!!

Using Becker Self-Study

"If we were put here to carry a great weight, then the very things we hate are here to build those muscles."

[Anonymous]

No, I see it now…it's definitely confusing to have incorrect facts. I was confused too! haha glad you got it sorted out.

[Author]

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