Question

Margaret, a married taxpayer filing a joint return, engaged in two business activities this year. Business A earned $470,000 of profit. Business B incurred a loss of $(995,000). How much of Margaret's net business loss is not currently deductible?

The answer is NOT 12,500 or 25,000. I am unsure how to solve this because I know the max. deduction for MFJ is 500,000 and since the net loss is (525,000) i would think 25,000 is not deductible (and since that was wrong I tried 12,500 to see if it made a difference to only account half the non-deduction for one person).

Answer 1

Margaret is engaged in two business activities. Business A earned $470,000 of profit. Business B incurred a loss of $(995,000) If one has two business activities, with loss from one business activity and gain from 2nd business activity, then loss from 1st business activity will reduce gain from 2nd business to the extent of gain. Hence deductible loss of business B = $470,000 Net Business loss not currently deductible = Total loss - deductible loss = $995,000 - $470,000 = $525,000