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Exam 11: Investor Losses

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Question 51

True/False

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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.

A) True
B) False

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Question 52

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

A) True
B) False

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Question 53

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Nora acquired passive activity A several years ago that until 2010 was profitable.However,the activity produced losses of $100,000 in 2010 and $50,000 in 2011.Nora had passive income from activity B of $40,000 in 2010 and $0 in 2011.How much loss is suspended from activity A in each year?

Roxanne,who is single,has $125,000 of salary,$10,000 of income from a limited partnership,and a $26,000 passive loss from a real estate rental activity in which she actively participates.Her modified adjusted gross income is $125,000.Of the $26,000 loss,how much is deductible?

Gail exchanges passive Activity A,which has suspended losses of $15,000,for passive Activity B in a nontaxable exchange.The new owner of passive Activity A can offset the $15,000 suspended losses against passive income in the future.

Tangerine Corporation,a closely held (non-personal service)C corporation,earns active income of $400,000 in the current year.The corporation also receives $35,000 in dividends during the year.In addition,Tangerine incurs a loss of $60,000 from an investment in a passive activity.What is Tangerine's income for the year after considering the passive investment?

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?

All of a taxpayer's tax credits relating to a passive activity can be utilized when the activity is sold at a loss.

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.

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.

Earl,who earned investment income of $13,500,incurred investment interest expense of $7,700,and other investment expenses of $9,000.Earl may carry over $3,200 of investment interest and deduct it in the future.

Judy owns a 20% interest in a partnership (not real estate)in which her at-risk amount was $35,000 at the beginning of the year.The partnership borrowed $50,000 on a recourse note and made a $40,000 profit during the year.Her at-risk amount at the end of the year is $43,000.

Investment income can include gross income from interest,dividends,annuities,and royalties not derived in the ordinary course of a trade or business; income from a passive activity; and income from a real estate activity in which the taxpayer actively participates.

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.

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.

In 2011,Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2011 and $100,000 in 2012,Kipp's share being $60,000 in 2011 and $30,000 in 2012.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?

Joe participates 95 hours in an activity,while an employee participates 5 hours.Joe has materially participated in the activity.

Wes's at-risk amount in a passive activity is $25,000 at the beginning of the current year.His current loss from the activity is $35,000 and he has no passive activity income.At the end of the current year,which of the following statements is incorrect?

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.

Barb borrowed $100,000 to acquire a parcel of land to be held for investment purposes.During 2011,she paid interest of $11,000 on the loan.She had AGI of $75,000 for the year.Other items related to Barb's investments include the following: Barb is unmarried and elects to itemize her deductions.She has no miscellaneous itemized deductions other than the investment counsel fees.