Green Corporation earns active income of $50,000 and receives $40,000 in dividends during the year.In addition, Green incurs a loss of $70,000 from an investment in a passive activity acquired several years ago.Consider the following two statements: (1) Green's current deduction for passive activity losses is $50,000 if it is a closely held C corporation that is not a personal service corporation. (2) Green's current deduction for passive activity losses is $0 if it is a personal service corporation.Which of the following answers is correct?

Question

Quizplus · Accepted Answer

Closely held C corporations that are not personal service corporations can deduct passive activity losses against active income, up to the amount of their active income ($50,000 in this case). Personal service corporations, however, cannot deduct passive activity losses against active income, so their current deduction for passive activity losses would be $0.

Green Corporation Earns Active Income of $50,000 and Receives $40,000