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Exam 11: Investor Losses

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Question 1

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Barb borrowed $100,000 to acquire a parcel of land to be held for investment purposes and paid interest of $11,000 on the loan.She has AGI of $75,000 for the year.Other items related to Barb's investments include the following: Investment income $10,000 Long-term capital gain on sale of stock 7,500 Investment counsel fees 500 ​ Barb is unmarried and does not itemize her deductions. ​ a.Determine Barb's current investment interest deduction,assuming she does not make any special election regarding the computation of investment income. ​ b.Discuss the treatment of Barb's investment interest that is disallowed in the current year. ​ c.What election could Barb make to increase the amount of her current investment interest deduction?

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a.Barb's investment interest deduction i...

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Question 2

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

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B) False

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Question 3

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Identify how the passive loss rules broadly classify various types of income and losses.Provide examples of each category.

Josie,an unmarried taxpayer,has $155,000 in salary,$10,000 in income from a limited partnership,and a $26,000 passive loss from a real estate rental activity in which she actively participates.If her modified adjusted gross income is $155,000,how much of the $26,000 loss is deductible?

Wolf Corporation has active income of $55,000 and a passive loss of $33,000 in the current year.Wolf cannot deduct the $33,000 loss if it is a closely held C corporation that is not a personal service corporation.

Kim dies owning a passive activity with a basis of $75,000,a fair market value of $140,000,and suspended losses of $80,000.All of the $80,000 passive loss can be deducted on Kim's final income tax return.

Match the treatment for the following types of transactions. a.The losses are allowed in the years in which gain is recognized.b.Suspended losses are allowed to offset the income from the activity, other passive activities, or active income.c.Suspended losses are allowed to the taxpayer to the extent they exceed the amount, if any, of the step-up in basis allowed.d.Any suspended losses may be used in the current year.e.The suspended losses are added to the basis of the property.f.No correct choice is given. -Treatment of a disposition of a passive activity by gift.

Rita earns a salary of $150,000,and invests $40,000 for a 20% interest in a passive activity.Operations of the activity result in a loss of $250,000,of which Rita's share is $50,000.How is her loss characterized?

Kate dies owning a passive activity with an adjusted basis of $100,000.Its fair market value at that date is $130,000.Suspended losses relating to the property were $45,000.

Ken has a $40,000 loss from an investment in a partnership in which he does not materially participate.He paid $30,000 for his interest.How much of the loss is disallowed by the at-risk rules? How much is disallowed by the passive loss rules?

Nell sells a passive activity with an adjusted basis of $45,000 for $105,000.Suspended losses attributable to this property total $45,000.The total gain and the taxable gain are:

David earned investment income of $20,000,incurred investment interest expense of $12,000,and other investment expenses of $9,000 during the current year.David can deduct $12,000 of investment interest for this year.

Describe the types of activities and taxpayers that are subject to the at-risk rules.

White Corporation,a closely held personal service corporation,has $150,000 of passive losses,$120,000 of active business income,and $30,000 of portfolio income.How much of the passive loss can White Corporation deduct?

Individuals can deduct from active or portfolio income losses of up to $25,000 from real estate rental activities in which they actively participate.

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.

Identify the types of income that are classified as investment income.Discuss the flexibility that a taxpayer has with respect to certain types of income that may potentially be considered investment income.

Paula owns four separate activities.She elects not to group them together as a single activity under the "appropriate economic unit" standard.Paula participates for 130 hours in Activity A,115 hours in Activity B,260 hours in Activity C,and 100 hours in Activity D.She has one employee,who works 125 hours in Activity D.Which of the following statements is correct?

Caroyl made a gift to Tim of a passive activity (adjusted basis of $50,000,suspended losses of $20,000,and a fair market value of $80,000) .No gift tax resulted from the transfer.

In the current year,Kelly had a $35,000 loss from a real estate rental activity in which she is a 10% owner.If she is an active participant and if her modified AGI is $100,000,she can deduct $25,000 of the loss.