Final answer:
Penn's net passive income for Year 1 is $115,000, which is calculated by adding the rental income and dividends, then subtracting the passive losses. Hence, option C is correct.
Step-by-step explanation:
Net passive income refers to the total income generated from passive activities minus any passive losses incurred. Passive income is earnings derived from ventures in which the individual is not actively involved, such as rental properties, limited partnerships, or other forms of investments.
To determine Penn's net passive income for Year 1, one must account for all passive income streams and subtract any passive losses. Penn's total rental income is $100,000, dividend income is $20,000, and passive losses are $5,000.
The net passive income is calculated by combining the rental and dividend income, then subtracting the passive losses: $100,000 (rental income) + $20,000 (dividend income) - $5,000 (passive losses) = $115,000.
So, the correct option is: c) $115,000
The complete question is:
Penn owns multiple rental properties and investments, generating various streams of passive income. In Year 1, Penn receives rental income totaling $100,000, dividends from investments amounting to $20,000, and incurs $5,000 in passive losses from certain investments.
What is Penn's net passive income for Year 1 considering the information provided?
a) $5,000 b) $0 c) $115,000 d) $120,000