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10 March, 03:05

Grace acquired an activity four years ago. The loss from the activity is $50,000 in the current year (at-risk basis of $40,000 as of the beginning of the year). Without considering the loss from the activity, she has gross income of $140,000. If the activity is a convenience store and Grace is a material participant, what is the effect of the activity on her taxable income

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  1. 10 March, 06:37
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    Grace taxable income during the year = $100,000

    Explanation:

    Given:

    Current year loss = $50,000

    The beginning of the year = $40000 (At risk basis)

    Gross income during the year = $140,000

    Grace taxable income during the year = ?

    Computation of Grace taxable income during the year:

    Grace taxable income during the year = Gross income during the year - Deductible beginning loss during the year

    Grace taxable income during the year = $140,000 - $40,000

    Grace taxable income during the year = $100,000

    Therefore, her taxable income reduced from $140,000 to $100,000
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Home » Business » Grace acquired an activity four years ago. The loss from the activity is $50,000 in the current year (at-risk basis of $40,000 as of the beginning of the year). Without considering the loss from the activity, she has gross income of $140,000.
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