When a Taxpayer Experiences a Net Loss from a Nonresidence

question 101

Multiple Choice

When a taxpayer experiences a net loss from a nonresidence (rental property) :

• A) The taxpayer will not be allowed to deduct the loss under any circumstance if the taxpayer does not have passive income from other sources.
• B) The loss is fully deductible against the taxpayer's ordinary income no matter the circumstances.
• C) If the taxpayer is not an active participant in the rental, the taxpayer may be allowed to deduct the loss even if the taxpayer does not have any sources of passive income.
• D) If the taxpayer is not allowed to deduct the loss due to the passive activity loss limitations, the loss is suspended and carried forward until the taxpayer generates passive income or until the taxpayer sells the property.

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Definitions:

Freight In

The cost associated with transporting goods from suppliers to the buyer, which is added to the cost of inventory.

Inventory Shrinkage

The loss of products between purchase from supplier and sale to customer, often due to theft, damage, or errors.

Adjusting Entry

A journal entry made in the accounting records at the end of an accounting period to allocate income and expenditure to the correct period.

Periodic Inventory System

An accounting method that determines inventory levels and cost of goods sold at the end of an accounting period through physical counting.