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Exam 11: Investor Losses

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Question 21

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

A) Case 1 only.
B) Case 2 only.
C) Case 3 only.
D) Cases 1, 2, and 3.
E) None of the above.

F) C) and D)
G) A) and C)

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Question 22

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All of a taxpayer's tax credits relating to a passive activity can be utilized when the activity is sold at a loss.

A) True
B) False

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Question 23

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In 2012,Arnold invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Arnold's share.Which of the following statements is incorrect?

Green,Inc.,a closely held personal service corporation,has the following transactions in the current year: $100,000 of passive losses,$80,000 of active business income,and $20,000 of portfolio income.How much of the passive loss may Green use to offset other types of income this year?

Match the treatment for the following types of transactions.

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.

Anne sells a rental house for $100,000 (adjusted basis of $55,000).During her ownership,$60,000 of losses have been suspended under the passive activity loss rules.Determine the tax treatment to Anne on the disposition of the property.

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.

Which of the following is not a factor that should be considered in determining whether an activity is treated as an appropriate economic unit?

In the current year,Lucile,who has AGI of $70,000 before considering rental activities,is active in three separate real estate rental activities and is in the 28% tax bracket.She had $15,000 of losses from Activity A,$25,000 of losses from Activity B,and income of $20,000 from Activity A. Calculate her deductions and credits currently allowed and the suspended losses and credits. C. She also had $3,100 of tax credits from 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.

Roger owns and actively participates in the operations of an apartment building which produces a $40,000 loss during the year.He has AGI of $150,000 from an active business.He may deduct $25,000 of the loss.

Harry earned investment income of $18,500,incurred investment interest expense of $15,500,and other investment expenses of $9,000 during the current year.Harry may deduct $9,500 of investment interest expense this year and carry forward $6,000 to future years.

Chris receives a gift of a passive activity from his father whose basis was $60,000.Suspended losses related to the activity are $18,000.Chris will be allowed to offset the $18,000 suspended losses against future passive income.

Eric makes an installment sale of a passive activity having suspended losses of $40,000.He collects 25% of the sales price in the current year,and will collect 25% in each of the next three years.Eric can deduct $10,000 of the passive loss this year.

Services performed by an employee are treated as being related to a real estate trade or business if the employee performing the services has more than a 5% ownership interest in the employer.

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

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?

Vail owns interests in a beauty salon,a natural foods store,and a tanning salon.Several full-time employees work at each of the enterprises.As of the end of November of the current year,Vail has worked 180 hours in the beauty salon,220 hours at the natural foods store,and 80 hours at the tanning salon.These three ventures collectively will produce income.Vail also owns one other passive activity that is producing a loss (a limited partnership in which she has reported no participation).How should Vail plan her activities for the remainder of the year?

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.