a. This tax year, Shelly, who is an ER doctor, earned $200,000 of salary income and $50,000 of dividend income. She has no other income.

A few years ago, Shelly invested $25,000 in a real estate limited partnership called Rent-Too. Rent-Too owns rental properties operating at a substantial loss. Shelly invested in Rent-Too because she wanted to use her share of its generated losses to reduce her medical salary income.

For this tax year, Shelly received a Schedule K-1 from Rent-Too that shows her share of its annual operating loss is $75,000.

How much, if any, is Shellys gross income subject to tax? No Why?

b. Javi owns one passive activity interest in the Bold Limited Partnership (BLP) that he bought 3 years ago.

This tax year, Javi earns a $60,000 salary and sells his entire BLP interest to an unrelated person for $30,000. His adjusted basis in his BLP interest is $42,000, and he has a carry forward of $2,000 of unused ordinary passive activity loss from BLP. He has no other income.

How much, if any, is Javis gross income subject to tax? Why?