[TSM]

Below is a 2011 AICPA released question. How is ‘a’ correct? I thought passive losses can only be deducted against passive income? Any thoughts, anyone…..???

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

Explanation

Choice “a” is correct.

Texas: FAR 83 (8/25/10) | AUD 83 (11/22/10) | BEC 78 (2/26/11) | REG 90 (7/9/11)
End of a two-year long CPA exam journey!

[Anonymous]

Hi there TSM,

You have the general rule spot on! PAL's are netted against passive gains such as rental or partnership income. However, the key word here was the “disposed” of. In the year of disposal I believe you are allowed to net cumulative PAl's for the soon to be disposed partnership against ordinary income. therefore the 40 + 10 would be netted against the 70 of income…

This would give you the correct answer of choice A. I'm also studying for REG and if anyone notes anything wrong w/ my logic please let me know. 🙂 Best wishes on studying!

[TSM]

Thanks, cmvb08! That makes sense….

I was working the newly released questions….

It is definitely a confidence killer…. I am scheduled for July 9th for the exam….

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Texas: FAR 83 (8/25/10) | AUD 83 (11/22/10) | BEC 78 (2/26/11) | REG 90 (7/9/11)
End of a two-year long CPA exam journey!

[Anonymous]

July 2nd here… I'll let you know how it goes. Hopefully this will be the first passing score under my belt. Good Luck to you! you're almost finished 🙂

[TSM]

Thanks, cmvb08! Good luck to you as well! I can't wait to be done…. It's been long 1 1/2 yrs…. REG is definitely scaring me off a bit….

Texas: FAR 83 (8/25/10) | AUD 83 (11/22/10) | BEC 78 (2/26/11) | REG 90 (7/9/11)
End of a two-year long CPA exam journey!

[jmd494]

TSM…let me explain my last week to you. I recently finished REG 1-4 (second time through). I'm keeping track of my scores. I got 797 out of 893 correct (89%). I was feeling on top of the world.

Then I took those AICPA questions you linked to above…and got 8 out of the first 13 wrong for a brutally low 38%.

Totally ruined my night! So I totally agree with your “confidence killer” comment.

Hopefully the real test will be more like Becker. 🙁

[mnCPAwannabe]

Don't let it get you down guys. I scored low 60% on one of the Becker Final Exams and ended with a 78 on my real REG exam. This was also knowing I completely screwed up an entire simulation. REG is a beast but just do your best.

FAR: 84
AUD: 95
REG: 78
BEC: 88
ETHICS: 100

[TSM]

Sorry jmd494… if you want to make yourself feel good, search for the 2010 AICPA released questions and try that… i can assure you that you will feel better…. that's what I did…

mnCPAwannabe… thanks for the encouragement…

Texas: FAR 83 (8/25/10) | AUD 83 (11/22/10) | BEC 78 (2/26/11) | REG 90 (7/9/11)
End of a two-year long CPA exam journey!

[SoonToBeCPAChick]

I think another key phrase is that he materially participated in the business. I can't quite remember what the exception to the passive loss rule is, but I know that it has to do with materially participating in your business, then the losses are not considered passive, or something to that affect, (its in Becker somewhere).

I also bombed all the Becker practice exams for each section of the exam that I took and did fine on the exams. I think on FAR I got a 55 on one of them.

FAR 10/1/2010 =====> 90
BEC 10/28/2010 ====> 81
REG 2/2/2011 ======> 82
AUD 5/28/2011 =====> 92 ===========>DONE!!!!

[wanttobeacpa]

Dear SoonToBeCPAChick,

Congratulations!! You scored really good on the tests. I am 47 years old and an empty nested stay home Mom of 2, have passed the degree in accounting in 1987 and was never in the work force. Now I need advice as to what shall I read to take the CPA exam. Can you help me please?

Thank you and wish you success in your career.

[Anonymous]

“I thought passive losses can only be deducted against passive income?”

FYI- You can deduct up to $25,000 of passive loss against active income. If AGI exceeds $100,000, you lose 50 cents on the dollar. Any remainder gets carried forward indefinitely.

This doesn't apply to this question, but I just thought I'd clarify that statement of yours.

[Anonymous]

The $25,000 PAL allowance only applies to rental activities. Other PAL are still only deductible against passive income unless you dispose of the activity. Any suspended PAL from prior years related to a specific activity are deductible in the year you dispose of that activity, so the $10,000 suspended PAL and $40,000 current PAL are deductible in the current year in the question above.

[Author]

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