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Exam 11: Investor Losses

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Question 31

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Jed spends 32 hours a week,50 weeks a year,operating a DVD rental store that he owns.He also owns a music store in another city that is operated by a full-time employee.He elects not to group them together as a single activity under the "appropriate economic unit" standard.Jed spends 40 hours per year working at the music store.

A) Neither store is a passive activity.
B) Both stores are passive activities.
C) Only the DVD rental store is a passive activity.
D) Only the music store is a passive activity.
E) None of the above.

F) C) and D)
G) None of the above

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Question 32

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Pat sells a passive activity for $100,000 that has an adjusted basis of $55,000.During the years of her ownership,$60,000 of losses have been incurred that were suspended under the passive activity loss rules.In addition,the passive activity generated tax credits of $10,000 that were not utilized and suspended.Determine the tax treatment to Pat on the disposition of the property.

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Because Pat disposes of her entire inter...

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Question 33

Multiple Choice

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Rick,a computer consultant,owns a separate business (not real estate) in which he participates.He has one employee who works part-time in the business.

Individuals with modified AGI of $100,000 can deduct against active or portfolio income losses of up to $25,000 from real estate rental activities in which they actively participate.

Hugh has four passive activities which generate the following income and losses in the current year. How much of the $80,000 net passive loss can Hugh deduct this year? Calculate the suspended losses (by activity).

Emily earns a salary of $150,000,and invests $60,000 for a 20% interest in a passive activity.Operations of the activity result in a loss of $400,000,of which Emily's share is $80,000.How is her loss characterized?

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.

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.

Bonnie owns and actively participates in the operations of an apartment building that produces a $40,000 loss during the year.In addition,she has AGI of $100,000 from an active business.Her at-risk amount in the apartment building is $200,000.She may deduct $25,000 of the loss in the current year,while the remaining $15,000 is a suspended passive loss.

Joyce,an attorney,earns $100,000 from her law practice in the current year.In addition,she receives $35,000 in dividends and interest during the year.Further,she incurs a loss of $35,000 from an investment in a passive activity.What is Joyce's AGI for the year after considering the passive investment?

Coyote Corporation has active income of $45,000 and a passive loss of $23,000 in the current year.Coyote cannot deduct the $23,000 loss if it is a personal service corporation.

In 2012,Pearl invests $80,000 for a 10% partnership interest in an activity in which she is a material participant.The partnership reports losses of $500,000 in 2012 and $450,000 in 2013.Pearl's share of the partnership's losses is $50,000 in 2012 and $45,000 in 2013.How much of the losses can Pearl deduct?

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

In 2012,Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2012 and $100,000 in 2013,Kipp's share being $60,000 in 2012 and $30,000 in 2013.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?

In the current year,Rich has a $40,000 loss from a business he owns.His at-risk amount at the end of the year,prior to considering the current year loss,is $24,000.He will be allowed to deduct the $40,000 loss this year if he is a material participant in the business.

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.

From January through November,Vern participated for 420 hours as a salesman in a partnership in which he owns a 50% interest.The partnership has four full-time employees.During December,Vern spends 110 hours cleaning the store and painting the walls in order to meet the material participation standards.Vern qualifies as a material participant.

Identify how the passive loss rules broadly classify various types of income and losses.Provide examples of each category.

During the year,James performs the following personal services in three separate activities: 800 hours as a CPA in his tax practice,400 hours in a real estate development business (in which he is not a material participant),and 600 hours in an apartment leasing operation.He expects that losses will be realized from the two real estate ventures while his tax practice will show a profit.James files a joint return with his wife whose salary is $200,000.What is the character of the income and losses generated by these activities?

In the current year,Kenny has a $35,000 loss from a real estate rental activity.Kenny provides 1,000 hours of service to that activity,which is more than half of his working hours for the year.Kenny can deduct the $35,000 loss.