Example. In 1993, an individual derives $10,000 of ordinary income from passive activity X, no gains from the sale or exchange of capital assets or assets used in a trade or business, $12,000 of capital loss from passive activity Y, and no income, gain, deductions, or losses from any other passive activity. The capital loss from activity Y is a passive activity deduction (within the meaning of § 1.469-2T(d) ). Under section 469 and the regulations thereunder, the taxpayer is allowed $10,000 of the $12,000 passive activity deduction and has a $2,000 passive activity loss for the taxable year. Since the $10,000 passive activity deduction allowed under section 469 is a capital loss, such deduction is allowable for the taxable year only to the extent provided under section 1211. Therefore, the taxpayer is allowed $3,000 of the $10,000 capital loss under section 1211 and has a $7,000 capital loss carryover (within the meaning of section 1212(b)) to the succeeding taxable year.
Restaurant | Catering business | |
1993: | ||
Gross income | $20,000 | $60,000 |
Deductions | 40,000 | 60,000 |
Net income (loss) | (20,000) | |
1994: | ||
Gross income | 40,000 | 50,000 |
Deductions | 1 30,000 | 2 70,000 |
Net income (loss) | 10,000 | (20,000) |
1 Includes $8,000 of deductions that were disallowed for 1993 ($20,000 * $40,000/$100,000).
2 Includes $12,000 of deductions that were disallowed for 1993 ($20,000 * $60,000/$100,000).
Restaurant | Catering business | |
Gross income | $40,000 | $50,000 |
Deductions | 42,000 | 58,000 |
Net income (loss) | (2,000) | (8,000) |
Thus, the taxpayer can ordinarily treat $2,000 of the disallowed deductions as deductions from the restaurant activity for 1995, and $8,000 of the disallowed deductions as deductions from the catering activity for 1995.
Example.
26 C.F.R. §1.469-1