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Exam 11: Investor Losses

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Question 31

True/False

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A qualified real estate professional is allowed to treat income or loss from any real estate venture as active except for income or loss from a rental activity.

A) True
B) False

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Question 32

Multiple Choice

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Matt has three passive activities and has at-risk amounts in excess of $100,000 for each.During the year,the activities produced the following income (losses) . $\begin{array}{lr}\text { Activity A } & (\$ 60,000) \\\text { Activity B } & (40,000) \\\text { Activity C } & 75,000 \\\text { Net passive loss } & (\$ 25,000) \\\text { Matt's suspended losses are as follows: } &\end{array}$

A) $\$ 25,000 \text { is allocated to } C \text {, } \$0\text { to } A \text { and } B$
B) $\$ 12,500 \text { is allocated to } A , \$ 12,500 \text { to } \mathrm { B } \text {. }$
C) $\$ 15,000 \text { is allocated to } A , \$ 10,000 \text { to } B \text {. }$
D) $\$ 8.333 \text { is allocated to } A , B \text {, and } C \text {. }$
E) none of these

F) B) and D)
G) None of the above

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Question 33

Multiple Choice

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Carl,a physician,earns $200,000 from his medical practice in the current year.He receives $45,000 in dividends and interest during the year as well as $5,000 of income from a passive activity.In addition,he incurs a loss of $50,000 from an investment in a passive activity.What is Carl's AGI for the current year after considering the passive investment?

Pat sells a passive activity for $100,000 that has an adjusted basis of $55,000.During the years of her ownership,$60,000 of losses have been incurred that were suspended under the passive activity loss rules.In addition,the passive activity generated tax credits of $10,000 that were not utilized and suspended.Determine the tax treatment to Pat on the disposition of the property.

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.

Gray Company,a closely held C corporation,incurs a $50,000 loss on a passive activity during the year.The company has active income of $34,000 and portfolio income of $24,000.If Gray is not a personal service corporation,it may deduct $34,000 of the passive loss.

Individuals with modified AGI of $100,000 can deduct against active or portfolio income losses of up to $25,000 from real estate rental activities in which they actively participate.

A taxpayer is considered to be a material participant in a significant participation activity if he or she spends at least 400 hours in the activity.

Mary Jane participates for 100 hours during the year in an activity she owns.She has no employees and is the only participant in the activity.The activity is a significant participation activity.

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?

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?

Art's at­risk amount in a passive activity was $60,000 at the beginning of 2013.His loss from the activity in 2013 is $80,000,and he had no passive activity income during the year.Art had $20,000 of passive income from the activity in 2014.Under the passive loss rules,Art's suspended loss at the end of 2014 is:

Which of the following factors should be considered in determining whether an activity is treated as an appropriate economic unit?

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.

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.

Match the term with the correct response.More than one response may be correct. -Significant participation activity.

In 2014,Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2014 and $100,000 in 2015,Kipp's share being $60,000 in 2014 and $30,000 in 2015.How much of the losses from the partnership can Kipp deduct assuming he owns no other investments and does not participate in the partnership's operations?

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?

Vic's at­risk 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:

Discuss the treatment given to suspended passive activity losses and credits.What happens to an activity's unused losses and credits when the activity is sold?