Sarah, Who Owns a 50% Interest in a Grocery Store

question 5

Multiple Choice

Sarah, who owns a 50% interest in a grocery store, was a material participant in the activity for the last 25 years.She retired from the grocery 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 grocery store resulted in a loss for the current year and Sarah's share of the loss is $40,000.Sarah's share of the income from the office supply store is $75,000.She does not own interests in any other activities.

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

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