Question

Jonathan, a physician, earns $200,000 from his practice. He also receives $18,000 in dividends and interest on various portfolio investments. During the year, he pays $45,000 to acquire a 20% interest in a partnership that produces a $300,000 loss. Compute Jonathan’s AGL assuming that:

a. He does not participate in the operations of the partnership.

Answer 1

Jonathan's Adjusted Gross Income (AGI) is $218,000.

Step-by-step explanation:

To compute Jonathan's Adjusted Gross Income (AGI), we need to add his earned income from his practice and his investment income, and then subtract any losses from his partnership interest.

Given that Jonathan earns $200,000 from his practice and receives $18,000 in dividends and interest, his total income before any deductions is $218,000 ($200,000 + $18,000).

However, he also had a $300,000 loss from his partnership interest. Since he does not participate in the operations of the partnership, this loss is considered a passive activity loss.

Passive activity losses can only be deducted against passive activity income, which Jonathan does not have. Therefore, he cannot deduct the partnership loss, and his AGI remains at $218,000.