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passive_loss_limits_solution - Solution Passive activity...

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Solution : Passive activity loss limits (Sec. 469) Jane, a physician, provides the capital to purchase an interest in an orange grove. Jane hires a part-time employee who takes care of the orange grove. During 2007, the business reports a loss of $20,000 because prices are low and the relatively young trees produce only a few oranges. During 2008, the business reports another loss totaling $15,000. In 2009, the business earns $11,000. At the beginning of 2010, Jane sells the business for a gain of $13,000. Required : How much of the loss can Jane deduct in each year (2007-2010)? 2007 : Jane cannot offset the passive loss against the income from her medical practice as she does not materially participate in the business. If Jane held other passive investments that generated a profit, she could deduct the loss from the passive income they generated. In 2007, Jane has a suspended passive loss of $20,000. 2008 : Again, the passive activity loss limits prevent Jane from deducting the loss. She now has a $35,000 ($20,000 + $15,000) suspended passive loss at the end of 2008. 2009 : Since the business earns $11,000 in 2009 Jane can use some of the suspended
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