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Exam 11: Investor Losses

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Question 51

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In 2017,Joanne invested $90,000 for a 20% interest in a limited liability company (LLC) in which she is a material participant.The LLC reported losses of $340,000 in 2017 and $180,000 in 2018.Joanne's share of the LLC's losses was $68,000 in 2017 and $36,000 in 2018.How much of these losses can Joanne deduct?

A) $68,000 in 2017; $36,000 in 2018.
B) $68,000 in 2017; $22,000 in 2018.
C) $0 in 2017; $0 in 2018.
D) $68,000 in 2017; $0 in 2018.
E) None of the above.

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

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Question 52

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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.

A) True
B) False

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Question 53

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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 general rules that limit the deduction of investment interest expense.

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?

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:

If an owner participates for more than 500 hours in a bicycle rental activity located at a beach resort,any loss from that activity is treated as an active loss that can offset active income.

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.

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?

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

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?

Lucy owns and actively participates in the operations of an apartment complex that produces a $50,000 loss during the year.Her modified AGI is $125,000 from an active business.Disregarding any at-risk amount limitation,she may deduct $25,000 of the loss,and the remaining $25,000 is a suspended passive activity loss.

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?

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.

Linda owns investments that produce portfolio income and Activity A that produces losses.From a tax perspective,Linda will be better off if Activity A is not passive.

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?

Match the term with the correct response. More than one response may be correct. a. Taxpayer devotes time aggregating more than 500 hours in all significant participation activities during the year. b. Participates in making management decisions in a significant and bonafide sense. c. One in which the individual's participation equals more than 100 hours during the year. d. Taxpayer devotes time in the activity which constitutes substantially all of the participation in the activity of all individuals. e. Both options a. and d. are correct. f. No correct choice is given. -At-risk amount.

Sherri owns an interest in a business that is not a passive activity and in which she has $20,000 at risk.If the business incurs a loss from operations during the year and her share of the loss is $32,000,this loss will be fully deductible.

Dick participates in an activity for 90 hours during the year.He has no employees and there are no other participants.Dick is a material participant.

Tara owns a shoe store and a bookstore.Both businesses are operated in a mall.She also owns a restaurant across the street and a jewelry store several blocks away.