FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Losses and Loss Limitations

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 31

Multiple Choice

Review LaterAdd Note

Review Later

Which of the following decreases a taxpayer's at-risk amount?

A) Cash and the adjusted basis of property contributed to the activity.
B) Amounts borrowed for use in the activity for which the taxpayer is personally liable or has pledged as security property not used in the activity.
C) Taxpayer's share of amounts borrowed for use in the activity that is qualified nonrecourse financing.
D) Taxpayer's share of the activity's income.
E) None of these.

F) All of the above
G) A) and E)

Correct Answer

verified

Show Answer

Question 32

True/False

Review LaterAdd Note

Review Later

Kelly, who earns a yearly salary of $120,000, sold an activity with a suspended passive activity loss of $44,000.The activity was sold at a loss and Kelly has no other passive activities.The suspended loss is not deductible.

A) True
B) False

Correct Answer

verified

Show Answer

Question 33

Multiple Choice

Review LaterAdd Note

Jed spends 32 hours a week, 50 weeks a year, operating a bicycle rental store that he owns at a resort community. He also owns a music store in another city that is operated by a full-time employee.He elects not to group them together as a single activity under the "appropriate economic unit" standard.Jed spends 40 hours per year working at the music store.

In 2019, Mary had the following items: Assuming that Mary files as head of household (has one dependent child) , determine her taxable income for 2019.

Tom participates for 100 hours in Activity A and 450 hours in Activity B, both of which are nonrental businesses. Both activities are active.

Charles owns a business with two separate departments.Department A produces $100,000 of income and Department B incurs a $60,000 loss.Charles participates for 550 hours in Department A and 100 hours in Department B.He has full-time employees in both departments.

In the current year, Juan's home was burglarized.He had the following items stolen: ∙ Securities worth $25,000.Juan purchased the securities four years ago for $20,000. ∙ New tools that Juan had purchased two weeks earlier for $8,000.He uses the tools in making repairs at an apartment house that he owns and manages. ∙ An antique worth $15,000.Juan inherited the antique (a family keepsake) when the property was worth $11,000. Juan's homeowner's policy had a $50,000 deductible clause for thefts.If his salary for the year is $50,000, determine the amount of his itemized deductions as a result of the theft.

If personal casualty gains exceed personal casualty losses (after deducting the $100 floor), there is no itemized deduction.

Jon owns an apartment building in which he is a material participant and also owns a computer consulting business. Of the 2,000 hours he spends on these activities during the year, 55% of the time is spent operating the apartment building and 45% of the time is spent in the computer consulting business.

Aram owns a 20% interest in a partnership (not real estate) in which her at-risk amount was $35,000 at the beginning of the year.The partnership borrowed $50,000 on a recourse note and made a $40,000 profit during the year.Her at-risk amount at the end of the year is $43,000.

Five years ago, Tom loaned his son John $20,000 to start a business.A note was executed with an interest rate of 8%, which is the Federal rate.The note required monthly payments of the interest with the $20,000 due at the end of 10 years.John always made the interest payments until last year.During the current year, John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800.Tom is an accrual basis taxpayer whose only income is salary and interest income.The proper treatment for the nonpayment of the note is:

Vic's at-risk amount in a passive activity is $200,000 at the beginning of the current year.His current loss from the activity is $80,000.Vic had no passive activity income during the year.At the end of the current year:

The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.

A loss from a worthless security is always treated as a short-term capital loss.

Maria, who owns a 50% interest in a restaurant, has been a material participant in the restaurant activity for the last 20 years.She retired from the restaurant at the end of last year and will not participate in the restaurant activity in the future.However, she continues to be a material participant in a retail store in which she is a 50% partner.The restaurant operations produce a loss for the current year, and Maria's share of the loss is $80,000.Her share of the income from the retail store is $150,000.She does not own interests in any other activities.

On February 20, 2018, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000.On May 1, 2019, the stock became worthless.During 2019, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain.How should Bill treat these items on his 2019 tax return?

Tonya owns an interest in an activity (not real estate) that converted recourse financing to nonrecourse financing. Recapture of previously allowed losses is required if Tonya's at-risk amount is reduced below zero as a result of the debt restructuring.

The purpose of the excess business loss rules is to limit the amount of nonbusiness income (e.g., salaries, interest, dividends) that can be sheltered from tax as a result of business losses.

Two years ago, Gina loaned Tom $50,000.Tom signed a note the terms of which called for monthly payments of $2,000 plus 6% interest on the outstanding balance.Last year, when the balance owing on the loan was $18,000, Tom defaulted on the note.As of the end of last year, there appeared to be no reasonable prospect of Gina recovering the $18,000.As a consequence, Gina claimed the $18,000 as a nonbusiness bad debt.Last year, Gina had AGI of $50,000, which included $16,000 of net long-term capital gains.Gina did not itemize her deductions.During the current year, Tom paid Gina $13,000 in final settlement of the loan.How should Gina account for the payment in the current year?

Gloria owns and works full-time at a shop that rents watercraft of various types to tourists who are vacationing at the beach.If she generates a loss from that activity, the loss is subject to the passive activity loss rules because it is rental property.