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Exam 11: Investor Losses

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Question 51

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Samantha sells a passive activity (adjusted basis of $50,000) for $90,000.Suspended losses attributable to this property total $30,000.The realized gain and the taxable gain are:

A) $40,000 realized gain; $70,000 taxable gain.
B) $10,000 realized gain; $10,000 taxable gain.
C) $40,000 realized gain; $0 taxable gain.
D) $40,000 realized gain; $10,000 taxable gain.
E) None of the above.

F) C) and D)
G) B) and D)

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Question 52

Multiple Choice

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Last year,Ted invested $100,000 for a 50% interest in a partnership in which he was a material participant.The partnership incurred a loss,and Ted's share was $150,000.Which of the following statements is incorrect?

A) Ted's nondeductible loss of $50,000 can be carried over and used in the future (subject to the at-risk provisions) .
B) If Ted has taxable income of $50,000 from the partnership in the current year and no other transactions that affect his at-risk amount, he can use all of the $50,000 loss carried over.
C) Since Ted has only $100,000 of capital at risk, he cannot deduct more than $100,000 against his other income.
D) None of the above is incorrect.

E) All of the above
F) None of the above

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Question 53

Multiple Choice

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Ahmad owns four activities.He participated for 120 hours in Activity A,150 hours in Activity B,140 hours in Activity C,and 100 hours in Activity D.Which of the following statements is correct?

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?

Alex has three passive activities with at-risk amounts in excess of $100,000 for each.During the year,the activities produced the following income (losses) . Alex's suspended losses are as follows:

Sarah,who owns a 50% interest in a grocery store,was a material participant in the activity for the last 25 years.She retired from the grocery store at the end of last year and will not participate in the activity in the future.However,she continues to be a material participant in an office supply store in which she is a 50% partner.The operations of the grocery store resulted in a loss for the current year and Sarah's share of the loss is $40,000.Sarah's share of the income from the office supply store is $75,000.She does not own interests in any other activities.

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.

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.

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:

Last year,Wanda gave her daughter a passive activity (adjusted basis of $80,000; fair market value of $160,000)with suspended losses of $20,000.In the current year,her daughter realizes income of $10,000 from the activity.What are the tax effects to Wanda and her daughter?

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.

Stuart is the sole owner and a material participant in a business in which he has $50,000 at risk.If the business incurs a loss of $80,000 from operations,Stuart can deduct the full amount.

Identify from the list below the type of disposition of a passive activity where the taxpayer keeps the suspended losses of the disposed activity and utilizes them on a subsequent taxable disposition.

Lucy dies owning a passive activity with an adjusted basis of $90,000.Its fair market value at that date is $145,000.Suspended losses relating to the property were $75,000.Which of the following statements is true?

Jon owns an apartment building in which he is a material participant and 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.

When determining whether an individual is a material participant,participation by an owner's spouse generally counts.

Jack owns a 10% interest in a partnership (not real estate)in which his at-risk amount is $42,000 at the beginning of the year.During the year,the partnership borrows $80,000 on a nonrecourse note and incurs a loss of $60,000 from operations.Jack's at-risk amount at the end of the year is $44,000.

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

Orange Corporation,a closely held (non-personal service)C corporation,earns active income of $300,000 in the current year.The corporation also receives $35,000 in dividends and incurs a loss of $50,000 from an investment in a passive activity.What is Orange's income for the year after considering the passive investment?

Skeeter invests in vacant land for the purpose of realizing a profit on its appreciation.He leases the land during the period he holds it.The unadjusted basis of the property is $75,000 and its fair market value is $105,000.The lease payments are $1,200 per year.