[CPASF1]

From what I know about passive activity is that passive activity losses can only be claimed up to passive activity gains. and passive activity loss have no carryback and can carryforward indefinately. Is the answer to this question $5000 because 100,000* .05= 5000 loss and there is a $20,000 gain on a temporary investment, and therefore since there is a passive activity gain up to 20,000, then wolf can claim a passive activity gain up to $5000. the reason i am asking is because I wasn’t sure if earned interest was a passive activity or not so i picked 0 initially before i checked the answer. Thank you!

Don Wolf became a general partner in Gata Associates on January 1, Year 1, with a 5% interest in Gata’s profits, losses, and capital. Gata is a distributor of auto parts. Wolf does not materially participate in the partnership business. For Year 1, Gata had an operating loss of $100,000. In addition, Gata earned interest of $20,000 on a temporary investment. Gata has kept the principal temporarily invested while awaiting delivery of equipment that is presently on order. The principal will be used to pay for this equip­ment. Wolf’s passive loss for Year 1 is:

[ThomasHallberg]

The interest on investment is portfolio income and is not able to offset their share of passive loss

[CPASF1]

so then why are we allowed to claim $5,000 of passive losses, in that cased shouldn't the answer be O then?

[cpaMD86]

The partnership business, which is a passive activity, generated an $100,000 loss.

.05 * 100,000 = ($5,000) This is the share of the loss [Passive Activity]

FAR: 9/3

[smoothiezguy]

CPASF1 – the question doesn't say anything about how much of the passive loss Wolf can deduct, it's simply asking you to calculate the passive loss amount. As others have said, the investment income is portfolio income, so it cannot offset the operating loss, therefore Wolf's passive loss amount is $5,000. If he has other income sources which are passive, he would be able to offset those with this loss, but the question doesn't go that far.

CMA - 430
BEC - 83
FAR - ?
AUD -
REG -

[CPASF1]

oh, so we are allowed to claim the entire passive activity loss?

[Author]

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