During the current year, Ethan performs personal services as follows: 800 hours in his information technology consulting practice, 625 hours in a real estate development business, and 510 hours in a condominium leasing operation. He expects that losses will be realized from the two real estate ventures while his consulting practice will show a profit. Ethan files a joint return with his wife
whose salary is $125,000 . The income and losses from the following ventures is considered active and not subject to the passive activity loss limitations:
a. Only the information technology consulting practice.
b. Only the information technology consulting practice and the real estate development business.
c. Only the information technology consulting practice and the condominium leasing operation.
d. All three of the ventures are considered active and not subject to the passive activity loss limitations.
e. None of the above.
d
RATIONALE: Ethan is considered a material participant in all three ventures, so the income and loss from these operations is treated as active and will be fully reflected on his income tax return. The losses from the real estate activities will not be subject to the passive activity loss rules because more than 50% of his personal services were devoted to real property trades or businesses in which he is a material participant, and this participation exceeded 750 hours. Thus, the losses from these activities can offset the income from his information technology consulting practice and his wife's salary.
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