Leigh, Who Owns a 50% Interest in a Sporting Goods

question 8

Multiple Choice

Leigh, who owns a 50% interest in a sporting goods store, was a material participant in the activity for the last fifteen years. She retired from the sporting goods store at the end of last year and will not participate in the activity in the future. However, she continues to be a material participant in an office supply store in which she is a 50% partner. The operations of the sporting goods store resulted in a loss for the current year and Leigh's share of the loss is $40,000. Leigh's share of the income from the office supply store is $75,000. She does not own interests in any other activities.

• A) Leigh cannot deduct the $40,000 loss from the sporting goods store because she is not a material participant.
• B) Leigh can offset the $40,000 loss from the sporting goods store against the $75,000 of income from the office supply store.
• C) Leigh will not be able to deduct any losses from the sporting goods store until future years.
• D) Leigh will not be able to deduct any losses from the sporting goods store until she has been retired for at least four years.
• E) None of the above.

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Definitions:

Acetic Acid

An organic compound with the chemical formula CH3COOH, which is a clear, sour-tasting liquid that is the main component of vinegar apart from water.

Vinegar

An acidic liquid produced from the fermentation of ethanol by acetic acid bacteria, used as a condiment and for preservation.

Acid Base

Refers to the balance between acids and bases in the body, crucial for maintaining physiological pH and metabolic functions.

Mitochondria

Organelles found in the cytoplasm of eukaryotic cells, responsible for producing energy through the process of cellular respiration.