Charles owns a business with two separate departments.Department A produces $100,000 of income and Department B incurs a $60,000 loss.Charles participates for 550 hours in Department A and 100 hours in Department B.He has full-time employees in both departments.
A)If Charles elects to treat both departments as a single activity, he cannot offset the $60,000 loss against the $100,000 income.
B)Charles may not treat Department A and Department B as separate activities because they are parts of one business.
C)If Charles elects to treat the two departments as separate activities, he can offset the $60,000 loss against the $100,000 income.
D)If Charles elects to treat both departments as a single activity, he can offset the $60,000 loss against the $100,000 income.
E)None of these is correct.

Question

Quizplus · Accepted Answer

If Charles elects to treat both departments as a single activity, he can offset the $60,000 loss against the $100,000 income. This is because the two departments are part of the same business and can be treated as a single activity for tax purposes. Charles can use his hours worked to meet the material participation test and claim the loss as a deduction against the income from Department A.

Charles Owns a Business with Two Separate Departments