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?
I.Sullivan has a $4,500 loss from his ownership interest in Cowco, a feeder-cattle limited 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

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?
I.Sullivan has a $4,500 loss from his ownership interest in Cowco, a feeder-cattle limited 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.
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Quizplus · Accepted Answer

Explanation: The passive activity rules generally disallow the deduction for losses from passive activities unless the taxpayer has passive income to offset the losses. A passive activity is one in which the taxpayer does not materially participate. Since Sullivan is a limited partner in Swineco, his involvement is considered passive, and thus the loss is subject to the passive activity loss rules. In contrast, as a general partner in Cowco who is responsible for day-to-day management decisions, Sullivan's involvement is considered active, not passive, allowing the deduction of the loss.

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