Gray Company, a closely held C corporation, incurs a $50,000 loss on a passive activity during the year.The company has active income of $34,000 and portfolio income of $24,000.If Gray is not a personal service corporation, it may deduct $34,000 of the passive activity loss.

Question

Quizplus · Accepted Answer

A closely held C corporation may deduct up to $25,000 of passive activity losses against active or portfolio income. However, since Gray Company's active income is only $34,000, they may deduct the full $34,000 of the passive activity loss. This exception applies to non-personal service corporations only.

Gray Company, a Closely Held C Corporation, Incurs a $50,000