Mr. and Mrs. Perry own stock in an S corporation, which is their only passive activity. They have an $8,200 passive activity loss carryforward into this year. This year, the Perrys are allocated a $1,600 share of corporate ordinary business income. In December of this year, they recognize a $3,500 long-term capital gain on the sale of their entire stock interest. How much of their loss carryforward can the Perrys deduct this year?

Question

Quizplus · Accepted Answer

The Perrys can deduct the entire $8,200 loss carryforward this year. The $1,600 of ordinary business income and the $3,500 long-term capital gain from the sale of their stock interest are both considered passive activity income since the stock in the S corporation is their only passive activity. Therefore, they can offset this income with their passive activity loss carryforward.

Mr and Mrs