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Exam 6: Losses and Loss Limitations

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Question 21

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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

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Question 22

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During the current year,Ryan performs personal services as follows: 700 hours in his management consulting practice,650 hours in a real estate development business,and 550 hours in an apartment leasing operation.He expects that losses will be realized from the two real estate ventures while his consulting practice will show a profit.Ryan files a joint return with his wife whose salary is $125,000.Discuss the character and treatment of the income and losses generated by these activities.

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Ryan is considered a material participan...

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Question 23

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Tom participates for 300 hours in Activity A and 250 hours in Activity B,both of which are nonrental businesses.Both activities are active.

If a taxpayer has a net operating loss (NOL) in 2015 of $20,000,of which $8,000 is attributable to a theft of rental use property,the taxpayer may:

Last year,Amos had AGI of $50,000.Amos also had a diamond ring stolen which cost $20,000 and was worth $17,000 at the time of the theft.He itemized deductions on last year's tax return.In the current year,Amos recovered $17,000 from the insurance company.Therefore,he must include $11,900 in gross income on the tax return for the current year.

In 2015,Emily invests $120,000 in a limited partnership that is not a passive activity.During 2015,her share of the partnership loss is $90,000.In 2016,her share of the partnership loss is $50,000.How much can Emily deduct in 2015 and 2016?

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.

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?

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.

Mary Jane participates for 100 hours during the year in an activity she owns.She has no employees and is the only participant in the activity.The activity is a significant participation activity.

Taxpayer's home was destroyed by a storm in the current year and the area was declared a disaster area.If the taxpayer elects to treat the loss as having occurred in the prior year,it will be subject to the 10%-of-AGI reduction based on the AGI of the current year.

In determining whether a debt is a business or nonbusiness bad debt,the debtor's use of the borrowed funds is important.

On July 20,2014,Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is § 1244 small business stock) for $24,000.On November 10,2014,Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000.On September 15,2015,Matt sold the 4,000 shares of stock for $120,000.How should Matt treat the sale of the stock on his 2015 return?

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.

Josie,an unmarried taxpayer,has $155,000 in salary,$10,000 in income from a limited partnership,and a $26,000 passive loss from a real estate rental activity in which she actively participates.If her modified adjusted gross income is $155,000,how much of the $26,000 loss is deductible?

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.

Identify the factors that should be considered in determining whether a transaction is a business bad debt or a nonbusiness bad debt.

Green Corporation earns active income of $50,000 and receives $40,000 in dividends during the year.In addition,Green incurs a loss of $70,000 from an investment in a passive activity acquired several years ago.Consider the following two statements: (1) Green's current deduction for passive losses is $50,000 if it is a closely held C corporation that is not a personal service corporation. (2) Green's current deduction for passive losses is $0 if it is a personal service corporation. Which of the following answers is correct?

A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.

Norm's car,which he uses 100% for personal purposes,was completely destroyed in an accident in 2015.The car's adjusted basis at the time of the accident was $13,000.Its fair market value was $10,000.The car was covered by a $2,000 deductible insurance policy.Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates.His adjusted gross income was $14,000 (before considering the loss) .What is Norm's deductible loss?