Ms. Cowler owns stock in Serzo Inc., an S corporation, and an interest in OTW Partnership. This year, Ms. Cowler had the following income and loss items. $$\begin{array} { | l | r | }
\hline \text { Salary } & \$ 66,800 \
\hline \text { Interest ard dividends } & 1,200 \
\hline \text { Business loss from Serzo } & \$ ( 19,400 ) \
\hline \text { Business incene from OTW } & \$ 17,000 \
\hline
\end{array}$$ If Ms. Cowler's interests in Serzo and OTW are passive activities, compute her AGI.

Question

Ms. Cowler owns stock in Serzo Inc., an S corporation, and an interest in OTW Partnership. This year, Ms. Cowler had the following income and loss items. $$\begin{array} { | l | r | } 
\hline \text { Salary } & \$ 66,800 \
\hline \text { Interest ard dividends } & 1,200 \
\hline \text { Business loss from Serzo } & \$ ( 19,400 ) \
\hline \text { Business incene from OTW } & \$ 17,000 \
\hline
\end{array}$$ If Ms. Cowler's interests in Serzo and OTW are passive activities, compute her AGI.

Quizplus · Accepted Answer

Passive activity losses can only offset passive activity income. Therefore, the business loss from Serzo cannot offset the salary or interest and dividends. The AGI is calculated as: Salary ($66,800) + Interest and dividends ($1,200) + Business income from OTW ($17,000) = $85,000. However, since the loss from Serzo is passive, it cannot be deducted, so the AGI remains $68,000.

Ms Cowler Owns Stock in Serzo Inc If Ms Cowler's Interests in Serzo and OTW Are Passive Activities