a. If Jonathan is not a material participant, $45,000 of his $60,000 loss ($300,000 loss × 20% interest) is reclassified
as a passive loss and disallowed under the passive loss limits. The remaining $15,000 is disallowed by the at-risk
limits. Therefore, Jonathan’s AGI is $218,000 ($200,000 salary + 18,000 portfolio income).
b. If Jonathan is a material participant, $45,000 of his $60,000 loss is deductible as an active loss. The remaining
$15,000 is disallowed by the at-risk limits. Therefore, Jonathan’s AGI is $173,000 ($200,000 salary + $18,000
portfolio income – $45,000 active loss).
Examples 37 to 39
52. If losses were limited only by the at-risk rules, Gerald would be able to deduct the following amounts in 2009 and 2010.
* Allowed under the at-risk rules, reclassified as a passive loss subject to the passive loss limitations.
However, the losses also are limited by the passive loss rules as follows:
Travel days count as business days and weekends also count as business days when preceded (i.e.,
Friday) and followed (i.e., Monday) by business days. For Brittany, Thursday is a personal day.
Brittany’s deductible expenses are determined below:
Lodging (6 nights × $140)
Meals (5 days × $130) × 50% (cutback adjustment)
As Brittany was away from home for seven days, all of the airfare is deductible and no
apportionment is required. [Note: Brittany also passes the less than 25% for personal purposes
test (i.e., one day out of eight is less than 25%)]. Consequently, Brittany’s deductible expenses
are $3,765—as determined in part a. of this problem. Examples 22, 23, and Footnote 18
Because Brittany is self-employed, a deduction for AGI results. p. 9-3
Although they may be very useful to their family, Mrs. Lord’s activities do not constitute a trade or
business. Consequently, her expenses at the conference are not deductible.
Alvin’s deductible expenses are as follows:
Airfare (one ticket)
Meals ($100 ×3 days)
Less: Cutback adjustment
Registration fee ($520 – $120)
Examples 14, 15, and 17
Justin’s trip is treated as being 100% for business. Weekends and holidays are business days when
preceded and followed by business days. Travel days are business days and (though not
mentioned in the text) this should include days when travel is not possible (e.g., equipment
failure, weather delays).
Yes, as this causes Saturday, Sunday, and Monday to be nonbusiness days.