Question

Grebe Corporation, a closely held corporation that is not a PSC, had $75,000 of net active income, $60,000 of portfolio income, and a $105,000 passive activity loss during the year. How much of the passive activity loss can Grebe deduct in the current year?

a. $135,000
b. $105,000
c. $60,000
d. $0
e. None of these choices are correct.

Answer 1

The amount of the passive activity loss that Grebe Corporation can deduct in the current year depends on the taxpayer's active participation in the activity. If Grebe Corporation did not actively participate in the rental real estate activity, the passive activity loss is not deductible in the current year.

Step-by-step explanation:

The amount of the passive activity loss that Grebe Corporation can deduct in the current year depends on the taxpayer's active participation in the activity.

If the taxpayer actively participated in the rental real estate activity, they can deduct up to $25,000 of the passive activity loss against other income. However, the $25,000 deduction is phased out for taxpayers with modified adjusted gross income (MAGI) between $100,000 and $150,000.

Since Grebe Corporation is not a PSC (Personal Service Corporation), the rules for passive activity loss limitations apply. If the taxpayer did not actively participate in the rental real estate activity, the passive activity loss is not deductible in the current year. Therefore, none of the provided choices are correct.