Question

Nathan owns Activity A, which produces income, and Activity B, which produces passive losses. From a tax planning perspective, Nathan will be better off if Activity A is passive.

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Answer 1

Nathan will be better off if Activity A is passive.

Step-by-step explanation:

From a tax planning perspective, Nathan will be better off if Activity A is passive. Passive income is income that is earned from rental properties, limited partnerships, or other enterprises in which the individual is not actively involved. Passive losses, on the other hand, are losses incurred from passive activities that cannot be used to offset income from other sources.

If Nathan's Activity A is passive, he can use the passive losses from Activity B to offset the income generated by Activity A for tax purposes. This can potentially reduce the overall tax liability for Nathan. However, if Activity A is active, the passive losses from Activity B cannot be used to offset the income from Activity A.