Jenny spends 32 hours a week, 50 weeks a year, operating a bicycle rental store that she owns at a resort community. She also owns a music store in another city that is operated by a full-time employee. Jenny spends 140 hours per year working at the music store. She elects not to group them together as a single activity under the "appropriate economic unit" standard

Question

a. Neither store is a passive activity.
b. Both stores are passive activities.
c. Only the bicycle rental store is a passive activity.
d. Only the music store is a passive activity.
e. None of the above.

Answer 1

a
RATIONALE: A bicycle rental store is not treated as a rental activity because the average period of customer use is 7 days or less. Because Jenny participates for more than 500 hours during the year, the bicycle rental store is treated as an active business. Jenny participates for more than 100 hours in the music store, which makes it a significant participation activity. Her total participation in the two significant participation activities is more than 500 hours, so neither business is treated as passive.