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Exam 11: Investor Losses

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Question 31

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Seth has four passive activities.The following income and losses are generated in the current year. How much of the $90,000 net passive loss can Seth deduct this year? Calculate the suspended losses (by activity).

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None.The suspended l...

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Question 32

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Joyce,an attorney,earns $100,000 from her law practice in the current year.In addition,she receives $35,000 in dividends and interest during the year.Further,she incurs a loss of $35,000 from an investment in a passive activity.What is Joyce's AGI for the year after considering the passive investment?

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Joyce cannot deduct the passiv...

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Question 33

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Describe the general rules that limit the deduction of investment interest expense.

Consider the following three statements: In which of the three cases above could the rental activity automatically be considered a passive activity?

Rachel acquired a passive activity several years ago.Until 2008,the activity was profitable,and Rachel's at-risk amount at the beginning of 2008 was $300,000.The activity produced losses for Rachel of $80,000 in 2008,$50,000 in 2009,and $70,000 in 2010.In 2011,the activity produced income of $90,000.How much is Rachel's suspended passive loss at the beginning of 2012?

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

During the year,Lion Company incurs a $25,000 loss on a passive activity,has active income of $17,000,and portfolio income of $12,000.If Lion is a personal service corporation,it may deduct $17,000 of the $25,000 passive loss.

What special passive loss treatment is available to real estate activities?

Sam,who earns a salary of $400,000,invested $160,000 for a 40% working interest in an oil and gas limited partnership (not a passive activity)last year.Through the use of $1,600,000 of nonrecourse financing,the partnership acquired assets worth $2 million.Depreciation,interest,and other deductions related to the activity resulted in a loss in the partnership's initial year of $300,000,of which Sam's share was $120,000.Sam's share of loss from the partnership is $60,000 in the current year.How much of the loss from the partnership can Sam deduct in each year?

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.

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?

Joyce owns an activity (not real estate)in which she participates for 100 hours a year; her husband participates for 450 hours.Joyce qualifies as a material participant.

Faye dies owning an interest in a passive activity property (adjusted basis of $150,000,suspended losses of $52,000,and a fair market value of $180,000).What,if any,can be deducted on her final income tax return?

Tony is married and files a joint tax return for 2011.He has investment interest expense of $95,000 for a loan made to him in 2011 to purchase a parcel of unimproved land.His income from investments [dividends (not qualified) and interest] totaled $18,000.Tony paid $3,600 of real estate taxes on the unimproved land.Tony also has a $4,500 net long-term capital gain from the sale of stock held as an investment.Calculate Tony's maximum investment interest deduction for 2011.

In the current year,Spring Corporation,a closely held personal service corporation,has $120,000 of passive losses,$70,000 of active business income,and $50,000 of portfolio income.How much of the passive loss may Spring deduct in the current year?

Ramon incurred $83,100 of interest expense related to his investments in 2011.His investment income included $34,500 of interest and a $37,500 net capital gain on the sale of securities.What is the maximum amount of Ramon's investment interest expense deduction in 2011?

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

Seth had interest income of $31,000,investment expenses of $28,000,and a long-term capital gain of $8,000 on an investment.In calculating his net investment income,Seth may deduct a maximum of $11,000 investment interest.

Jenny spends 32 hours a week,50 weeks a year,operating a DVD rental store that she owns.She also owns a music store in another city that is operated by a full-time employee.Jenny spends 140 hours per year working at the music store.She elects not to group them together as a single activity under the "appropriate economic unit" standard.

Sarah purchased for $100,000 a 10% interest in a business venture that is not subject to the passive activity rules.During the first year,her share of the entity's loss was $120,000.At the beginning of the second year,the entity obtained $800,000 of recourse financing.During the second year,Sarah withdrew cash of $20,000,and her share of the entity's loss was $25,000.Calculate the amount of loss that Sarah may claim in each of the two years and determine her at-risk amount at the end of each year.