Arnold purchased interests in two limited partnerships 6 years ago. During 2019, Arnold had income of $22,000 from one of the partnerships. He had a loss from the other partnership of $32,000, salary income of $35,000, and dividend income of $2,000. What is the amount of net passive losses that Arnold may deduct for 2019?

Question

Quizplus · Accepted Answer

Passive activity losses, such as those from limited partnerships, are only deductible to the extent of passive activity income. Arnold had $22,000 of passive income and $32,000 of passive losses, resulting in a net passive loss of $10,000. However, since passive losses can only be deducted to the extent of passive income, he can only deduct $22,000 of his losses, leaving him with no deductible passive losses after offsetting all his passive income. The remaining $10,000 loss is carried forward to future years. Salary and dividend income are not considered passive income, so they do not affect the calculation of deductible passive losses.

Arnold Purchased Interests in Two Limited Partnerships 6 Years Ago