Choice "c" is correct. Passive activity losses (PALs) can only be deducted up
to passive activity income. There is no passive activity income indicated.
Therefore, the passive loss from the partnership is not deductible. $25,000 of
the $35,000 rental real estate loss is deductible under the "mom and pop"
exception because Bearing actively participates in the rental property and the
AGI is below the phaseout amounts. The AGI is calculated as follows: Wages | $ 18,000 | Taxable interest and qualifying dividends | 4,000 | Schedule C trucking business net income | 32,000 | Rental loss from residential property | (25,000) | Adjusted gross income (AGI) | $ 29,000 |
Choices "d", "b", and "a" are incorrect per the above rule and per the above
computation. |
