Catfish, Inc., a closely held corporation which is not a PSC, owns a 45% interest in Trout Partnership, which is classified as a passive activity.Trout's taxable loss for the current year is $250,000.During the year, Catfish receives a $60,000 cash distribution from Trout.Other relevant data for Catfish are as follows. $\begin{array}{lr}
\text { Net income from operations } & \$ 800,000 \
\text { Dividend income } & 25,000 \
\text { Rent income } & 20,000
\end{array}$ How much of Catfish's share of Trout's loss may it deduct in calculating its taxable income?
A)$0
B)$20,000
C)$45,000
D)$112,500

Question

Quizplus · Accepted Answer

Catfish, Inc. can deduct its share of Trout's loss up to the amount of its distributive share of the loss. Since Catfish owns a 45% interest in Trout Partnership, it can claim 45% of Trout's $250,000 loss, which amounts to $112,500. This is contingent on having sufficient basis and passive income to offset the passive loss, but based on the information provided, the deduction amount would be $112,500.

Catfish, Inc How Much of Catfish's Share of Trout's Loss May It