FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Losses and Loss Limitations

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

True/False

Review LaterAdd Note

Review Later

Tonya owns an interest in an activity (not real estate) that converted recourse financing to nonrecourse financing. Recapture of previously allowed losses is required if Tonya's at-risk amount is reduced below zero as a result of the debt restructuring.

A) True
B) False

Correct Answer

verified

Show Answer

Question 2

True/False

Review LaterAdd Note

Review Later

A bond held by an investor that is uncollectible will be treated as a worthless security and hence, produce a capital loss.

A) True
B) False

Correct Answer

verified

Show Answer

Question 3

Multiple Choice

Review LaterAdd Note

In 2015, Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity. The partnership reported losses of $200,000 in 2015 and $100,000 in 2016, Kipp's share being $60,000 in 2015 and $30,000 in 2016. 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?

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.

Lindsey, an attorney, earns $125,000 from her law practice in the current year. In addition, she receives $50,000 in dividends and interest during the year. Further, she incurs a loss of $40,000 from an investment in a passive activity. What is Lindsey's AGI for the year after considering the passive investment?

Tom participates for 100 hours in Activity A and 450 hours in Activity B, both of which are nonrental businesses. Both activities are active.

Kelly, who earns a yearly salary of $120,000, sold an activity with a suspended passive loss of $44,000. The activity was sold at a loss and Kelly has no other passive activities. The suspended loss is not deductible.

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?

Three years ago, Sharon loaned her sister $30,000 to buy a car. A note was issued for the loan with the provision for monthly payments of principal and interest. Last year, Sharon purchased a car from the same dealer, Hank's Auto. As partial payment for the car, the dealer accepted the note from Sharon's sister. At the time Sharon purchased the car, the note had a balance of $18,000. During the current year, Sharon's sister died. Hank's Auto was notified that no further payments on the note would be received. At the time of the notification, the note had a balance due of $15,500. What is the amount of loss, with respect to the note, that Hank's Auto may claim on the current year tax return?

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.

Josh has investments in two passive activities. Activity A (acquired three years ago) produces income of $30,000 this year, while Activity B (acquired two years ago) produces a loss of $50,000. What is the amount of Josh's suspended loss for the year?

Ned, a college professor, owns a separate business (not real estate) in which he participates in the current year. He has one employee who works part-time in the business.

The amount of a loss on insured personal use property is reduced by the insurance coverage if no claim is made against the insurer.

If an account receivable written off during a prior year is subsequently collected during the current year, the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.

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.

On February 20, 2015, Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000. On May 1, 2016, the stock became worthless. During 2016, Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago, a $9,000 loss on a nonbusiness bad debt, and a $5,000 long-term capital gain. How should Bill treat these items on his 2016 tax return?

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.

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.

The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.

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.