Sullivan, a pilot for Northern Airlines, has adjusted gross income of $92,000 before considering the following losses. The passive activity rules disallow the deduction for a loss in which of the following? Sullivan has a $4,500 loss from his ownership interest in Cowco, a feeder-cattle limited I. partnership. Sullivan is a general partner and is responsible for day-to-day management decisions. II. Sullivan has a $7,000 loss from his ownership interest in Swineco, a feeder-pig limited partnership. Sullivan is a limited partner.

Question

Quizplus · Accepted Answer

The passive activity rules disallow the deduction for losses from passive activities, which typically include limited partnerships where the taxpayer does not materially participate. In statement II, Sullivan is a limited partner in Swineco, making it a passive activity, and thus the loss is disallowed. In statement I, Sullivan is a general partner and materially participates, so the loss is not disallowed.

Sullivan, a Pilot for Northern Airlines, Has Adjusted Gross Income