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Exam 11: Investor Losses

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Question 21

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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.

A) True
B) False

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Question 22

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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?

A) Wes has a loss of $25,000 suspended under the passive activity loss rules.
B) Wes has an at-risk amount in the activity of $0.
C) Wes has a loss of $10,000 suspended under the at-risk rules.
D) Wes has a loss of $35,000 suspended under the passive activity loss rules.
E) None of the above is incorrect.

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

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Question 23

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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.

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. -Active participation.

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

Orange Corporation,a closely held (non-personal service) C corporation,earns active income of $300,000 in the current year.The corporation also receives $35,000 in dividends and incurs a loss of $50,000 from an investment in a passive activity.What is Orange's income for the year after considering the passive investment?

Last year,Ted invested $100,000 for a 50% interest in a partnership in which he was a material participant.The partnership incurred a loss,and Ted's share was $150,000.Which of the following statements is incorrect?

Judy incurred $58,500 of interest expense this year related to her investments.Her investment income includes $15,000 of interest,$9,000 of qualified dividends,and a $22,500 net capital gain on the sale of securities.The maximum amount of Judy's investment interest expense deduction for the year is:

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

Bruce owns a small apartment building that produces a $25,000 loss during the year.His AGI before considering the rental loss is $85,000.Bruce must be a material participant with respect to the rental activity in order to deduct the $25,000 loss under the real estate rental exception.

In 2017,Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2017 and $100,000 in 2018,Kipp's share being $60,000 in 2017 and $30,000 in 2018.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?

Caroyl made a gift to Tim of a passive activity (adjusted basis of $50,000,suspended losses of $20,000,and a fair market value of $80,000) .No gift tax resulted from the transfer.

Chris receives a gift of a passive activity from his father whose basis was $60,000.Suspended losses related to the activity are $18,000.Chris will be allowed to offset the $18,000 suspended losses against future passive activity income.

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

Tess owns a building in which she rents apartments to tenants and operates a restaurant.Which of the following statements is incorrect?

Barb borrowed $100,000 to acquire a parcel of land to be held for investment purposes and paid interest of $11,000 on the loan.She has AGI of $75,000 for the year.Other items related to Barb's investments include the following: Interest and annuity ​ ​ a.Determine Barb's current investment interest deduction, assuming she does not make any special election regarding the computation of investment income.​ b.Discuss the treatment of Barb's investment interest that is disallowed in the current year.​ c.What election could Barb make to increase the amount of her current investment interest deduction?

Lloyd,a life insurance salesman,earns a $400,000 salary in the current year.As he works only 30 hours per week in this job,he has time to participate in several other businesses.He owns an ice cream parlor and a car repair shop in Tampa.He also owns an ice cream parlor and a car repair shop in Portland and a car repair shop in St.Louis.A preliminary analysis on December 1 of the current year shows projected income and losses for the various businesses as follows: ​ ​ Lloyd has full-time employees at each of the five businesses listed above.Review all possible groupings for Lloyd's activities.Which grouping method and other strategies should Lloyd consider that will provide the greatest tax advantage?

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. -Treatment of a disposition of a passive activity at death.

When a taxpayer disposes of a passive activity by gift,what happens to any unused passive activity losses?

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