Question

Which step must be completed first to determine the allowable losses when a taxpayer has multiple passive activities?

a) Figure the allowable losses from other passive activities.

b) Figure the allowable loss from rental real estate activies with active participation.

c) Figure the income or loss from each separate activity in the usual manner.

d) Figure the allowable loss from rental real estate activies with significant participation.

Answer 1

There are predominantly three classification as regard to passsive activites applicable for tax payer. One being trade and business, then activities in which active participation of tax payer is there i.e. the tax payer is involved in a regular manner and in substantial basis and the rental acitivity which are always assumed to be passive in nature irrespective of level of participation. In order to determine the allowable lossed when a tax payer has multiple passive activities option c is first i.e. the income and loss from each separate activity should be identified and then the allowance rule should be applied for passive activities.