Explore the elements required for an activity to be treated as passive and revie

Question

Explore the elements required for an activity to be treated as passive and review the rules for identifying an activity., 5 - Identify the tests for material participation. Department A generates net income of $70,000, and Department B generates a net loss of $58,000. Forrester participates 800 hours in the operations of Department A and 300 hours in the operations of Department B. If Forrester is allowed to treat the departments as components of a single activity, calculate the amount of the Department B loss that can be offset against the income from Department A in the current year.

Explanation / Answer

Department A generates net income = $70,000

Department B generates a net loss $58,000

Total income generate treating deparments as component of single activity = 12000

Forrester participates in the operations of Department A = 800 hours

Participates in the operations of Department B = 300 hours

Total hours = 1100

If Forrester is allowed to treat the departments as components of a single activity, then

Amount of the Department B loss that can be offset against the income from Department A in the current year = 42182

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