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Exam 11: Investor Losses

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Question 21

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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.

A) The heir's adjusted basis is $130,000,and Kate's final deduction is $15,000.
B) The heir's adjusted basis is $130,000,and Kate's final deduction is $45,000.
C) The heir's adjusted basis is $100,000,and Kate's final deduction is $45,000.
D) The heir's adjusted basis is $175,000,and Kate has no final deduction.
E) None of the above.

F) A) and E)
G) A) and D)

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Question 22

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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.

A) True
B) False

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Question 23

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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.

In the current year,Abby has AGI of $95,000 and a $40,000 loss from a real estate rental activity in which she is a 15% owner.If she is an active participant,she can deduct $25,000 of the loss.

In 2010,Jean earns a salary of $150,000 and invests $20,000 for a 20% interest in a partnership not subject to the passive loss rules.Through the use of $400,000 of nonrecourse financing,the partnership acquires assets worth $500,000.The activity produces a loss of $75,000,of which Jean's share is $15,000.In 2011,Jean's share of the loss from the partnership is $7,500.How much of the loss from the partnership can Jean deduct?

Jerry is a limited partner in a partnership that owns an amusement park.Although he participates for more than 500 hours in the park's operations,he is not considered a material participant.

During the year,Earl 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.

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 income.

Lucy owns and actively participates in the operations of an apartment complex that produces a $50,000 loss during the year.Her modified AGI is $125,000 from an active business.Disregarding any at-risk limitation,she may deduct $25,000 of the loss,and the remaining $25,000 is a suspended passive loss.

Dick participates in an activity for 90 hours during the year.He has no employees and there are no other participants.Dick is a material participant.

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.

Wayne owns a small apartment building that produces a $45,000 loss during the year.His AGI before considering the rental loss is $85,000.Because Wayne is an active participant with respect to the rental activity,he may deduct the $45,000 loss.

Lucy participates for 405 hours in Activity A and 100 hours in Activity B,both of which are nonrental businesses.Both activities are passive.

Purple Corporation,a personal service corporation,earns active income of $600,000.The corporation receives $60,000 in dividends and incurs a loss of $100,000 from an investment in a passive activity acquired three years ago.What is Purple's income after considering the passive investment?

Rhonda participates for 95 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.

In 2010,Joanne invested $90,000 for a 20% interest in a limited liability company (LLC) in which she is a material participant.The LLC reported losses of $340,000 in 2010 and $180,000 in 2011.Joanne's share of the LLC's losses was $68,000 in 2010 and $36,000 in 2011.How much of these losses can Joanne deduct?

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.

Jon owns an apartment building in which he is a material participant and a computer consulting business.Of the 2,000 hours he spends on these activities during the year,55% of the time is spent operating the apartment building and 45% of the time is spent in the computer consulting business.

Explain how a taxpayer's at-risk amount in a business venture is adjusted periodically.

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