Final answer:
The passive activity rules disallow the deduction for Sullivan's $7,000 loss from Swineco, a feeder-pig limited partnership, where he is a limited partner and not actively involved in the management of the company, which prevents him from materially participating according to IRS standards.
Step-by-step explanation:
The passive activity rules disallow the deduction for a loss in which of the following? For Sullivan, a pilot for Northern Airlines with an adjusted gross income of $92,000, the determination of which losses can be deducted depends on his participation in the businesses mentioned.
- Passive activity loss rules generally disallow the deduction of losses from business activities in which the taxpayer does not materially participate. Since Sullivan is a general partner and responsible for day-to-day management decisions in Cowco, this does not constitute a passive activity according to IRS rules.
- However, losses from Swineco, where Sullivan is a limited partner, would typically be considered passive since he is not actively involved in the company's management. Limited partners typically do not meet the material participation standards necessary to deduct losses against other income, unless they can demonstrate their active involvement according to specific IRS tests.
Therefore, the passive activity rules would disallow the deduction for the $7,000 loss from Sullivan's ownership interest in Swineco, the feeder-pig limited partnership.