Explore the elements required for an activity to be treated as passive and revie

Question

Explore the elements required for an activity to be treated as passive and review the rules for identifying an activity., 5 -Identify the tests for material participation. Department A generates net income of $70,000, and Department B generates a net loss of $58,000. Forrester participates 800 hours in the operations of Department A and 300 hours in the operations of Department B. If Forrester is allowed to treat the departments as components of a single activity, calculate the amount of the Department B loss that can be offset against the income from Department A in the current year.

Explanation / Answer

Forrester treats the dpartments as components of a single activity.

Net loss in department B = $58000

Total Activity in both the departments = 800+300 = 1100 hours

Net loss per activity = 58000/1100

= $52.7272

Amount of loss that can be offset against the income from department A in the current year = 52.7272*800 hours

= $42182

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