Hello everyone!
I can't take it anymore. Could somebody please explain me this example?
If your passive activity gross income from significant participation passive activities (defined later) for the tax year is more than your passive activity deductions from those activities for the tax year, those activities shall be treated, solely for purposes of figuring your loss from the activity, as a single activity that does not have a loss for such taxable year. See Significant Participation Passive Activities, later. – This sentence itself doesn't make any sense to me.
Example.
John Pine holds interests in three passive activities, A, B, and C. The gross income and deductions from these activities for the taxable year are as follows:
_________________A_______B_________C______Total
Gross income___$7,000___$4,000____$12,000___$23,000
Deductions_____(16,000)__(20,000)____(8,000)___(44,000)
Net income (loss)($9,000)_($16,000)___$4,000____($21,000)
John Pine’s $21,000 passive activity loss for the taxable year is disallowed. Therefore, a ratable portion of the losses from activities A and B is disallowed. He figures the disallowed portion of each loss as follows:
A: $21,000 x $9,000/$25,000____$7,560
B: $21,000 x $16,000/$25,000___13,440
Total $21,000
I don't understand anything about this. If the loss is disallowed, why all the calculations? What is 25000 in this formula? What do we do with this ratable portion now? Am I a complete idiot?
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