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During the year, Mark reports $90,000 of active business income from his law practice. He also owns two passive activities. From Activity A, he earns $20,000 of income, and from Activity B, he incurs a $30,000 loss. As a result, Mark A) reports AGI of $80,000. B) reports AGI of $90,000 with a $10,000 passive loss carryover. C) reports AGI of $90,000 with a $30,000 passive loss carryover. D) reports AGI of $110,000 with a $30,000 passive loss carryover.

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Answer:

B) reports AGI of $90,000 with a $10,000 passive loss carryover.

Explanation:

regular business income $90,000

passive income:

  • Activity A: $20,000 gain
  • Activity B: $30,000 loss

Mark's adjusted gross income will include the income from his normal business activities = $90,000. But he should also report the passive activities which result in a net loss of $10,000 (= $20,000 - $30,000 = -$10,000). This loss from his passive activities must be reported as passive loss carryover.

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