Question 1

If a taxpayer disposes of an interest in a passive activity,unused carryover losses are available to the purchaser of the interest.

Accepted Answer

A) True 
 B)False

Question 2

In the current year,Marcus reports the following casualty gains and losses on personal-use property.Assets X and Y are destroyed in the first casualty while Z is destroyed in a second casualty.Both casualties were the result of federal disasters. $$\begin{array} { | l | r | r | r | c | } 
\hline \text { Asset } & \begin{array} { c } 
\text { Reduction } \
\text { in FMV }
\end{array} & \begin{array} { c } 
\text { Adjusted } \
\text { Basis }
\end{array} & \text { Insurance } & \begin{array} { c } 
\text { Holding } \
\text { Period }
\end{array} \
\hline \mathrm { X } & \$ 8,000 & \$ 2,000 & \$ 7,000 & 2 \text { years } \
\hline \mathrm { Y } & 3,000 & 5,000 & 2,000 & 10 \text { months } \
\hline Z & 2,500 & 1,300 & 1,000 & 8 \text { months } \
\hline
\end{array}$$ As a result of these losses and insurance recoveries,Marcus must report

Accepted Answer

A) a net gain of $3,700. 
B) a long-term gain of $4,900 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. 
C) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. 
D) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $300 on asset Z. 
A) a net gain of $3,700. 
B) a long-term gain of $4,900 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. 
C) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $200 on asset Z. 
D) a long-term capital gain of $5,000 on asset X; a short-term capital loss of $900 on asset Y; and a short-term capital loss of $300 on asset Z.

Question 3

Rex has generated $150,000 of AGI this year due to salary,interest income and dividends.Rex is a single taxpayer.He plans to sell his shares of Trisco Inc.,a qualifying small business corporation under Sec.1244,realizing a $110,000 loss.Rex has not sold any other investment assets this year.Due to the sale of the Trisco stock,he will reduce his AGI by

Accepted Answer

A) $3,000. 
B) $110,000. 
C) $50,000. 
D) $53,000. 
A) $3,000. 
B) $110,000. 
C) $50,000. 
D) $53,000.

Question 4

Material participation by a taxpayer in a passive activity is satisfied if the individual participates in the activity for more than 500 hours during the year.

Accepted Answer

A) True 
 B)False

Question 5

A taxpayer may deduct suspended losses of a passive activity when the taxpayer completely terminates his or her ownership of the activity.

Accepted Answer

A) True 
 B)False

Question 6

When applying the limitations of the passive activity rules,a taxpayer's AGI is classified into active income,portfolio income and passive income.For this purpose,portfolio income includes dividends,interest,annuities,and royalties.

Accepted Answer

A) True 
 B)False

Question 7

Lucia owns 100 shares of Cronco Inc.which she purchased on December 1 of last year for $10,000.The stock is not Sec.1244 stock.On July 1 of the current year,Lucia receives notice from the bankruptcy court that Cronco Inc.has been liquidated,and there are no assets remaining for shareholders.As a result,Lucia will have

Accepted Answer

A) a short-term capital loss of $10,000. 
B) a long-term capital loss of $10,000. 
C) an ordinary loss of $10,000. 
D) no loss allowed. 
A) a short-term capital loss of $10,000. 
B) a long-term capital loss of $10,000. 
C) an ordinary loss of $10,000. 
D) no loss allowed.

Question 8

Jeff owned one passive activity.Jeff sold the activity and realized a $2,000 gain on the sale.Prior to the sale,he realized a current year loss from the activity of $6,000.In addition,he has suspended losses from prior years of $7,000.What is the net impact on Jeff's AGI this year due to the passive activity?

Accepted Answer

A) increase of $2,000 
B) no net change 
C) decrease of $4,000 
D) decrease of $11,000 
A) increase of $2,000 
B) no net change 
C) decrease of $4,000 
D) decrease of $11,000

Question 9

Once an activity has been classified as passive,it is considered passive with regard to that taxpayer until it is sold.

Accepted Answer

A) True 
 B)False

Question 10

Jarrett owns a mountain chalet that he purchased in 2008 for $175,000.This year,the home appraised at $300,000.Shortly after the appraisal,a severe blizzard hit the area in spring of the current year,destroying trees and severely damaging several homes,including Jarrett's chalet.The blizzard was declared a federal disaster.The chalet's value was reduced to $135,000.Jarrett does not have insurance.Jarrett's AGI is $200,000.Jarrett's deductible loss after limitations is

Accepted Answer

A) $135,000. 
B) $144,900. 
C) $164,900. 
D) $165,000. 
A) $135,000. 
B) $144,900. 
C) $164,900. 
D) $165,000.

Question 11

All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244)stock with the exception of

Accepted Answer

A) the stock must be owned by an individual or a partnership. 
B) the stock must have been issued by a domestic corporation. 
C) the stock must have been issued for cash or property other than stock or securities. 
D) a single taxpayer may deduct,as ordinary losses,up to a maximum of $100,000 per tax year with the remainder treated as capital losses. 
A) the stock must be owned by an individual or a partnership. 
B) the stock must have been issued by a domestic corporation. 
C) the stock must have been issued for cash or property other than stock or securities. 
D) a single taxpayer may deduct,as ordinary losses,up to a maximum of $100,000 per tax year with the remainder treated as capital losses.

Question 12

A single taxpayer earns $500,000 of salary income and $20,000 of interest income in 2019.The taxpayer is a material participant in the partnership.His share of the partnership's loss for the year is $300,000.The taxpayer will report AGI of

Accepted Answer

A) $520,000. 
B) $265,000. 
C) $220,000. 
D) $250,000. 
A) $520,000. 
B) $265,000. 
C) $220,000. 
D) $250,000.

Exam 25: Losses and Bad Debts

If a taxpayer disposes of an interest in a passive activity,unused carryover losses are available to the purchaser of the interest.

Material participation by a taxpayer in a passive activity is satisfied if the individual participates in the activity for more than 500 hours during the year.

A taxpayer may deduct suspended losses of a passive activity when the taxpayer completely terminates his or her ownership of the activity.

When applying the limitations of the passive activity rules,a taxpayer's AGI is classified into active income,portfolio income and passive income.For this purpose,portfolio income includes dividends,interest,annuities,and royalties.

Once an activity has been classified as passive,it is considered passive with regard to that taxpayer until it is sold.

All of the following are true of losses from the sale or worthlessness of small business corporation (Section 1244)stock with the exception of

A single taxpayer earns $500,000 of salary income and $20,000 of interest income in 2019.The taxpayer is a material participant in the partnership.His share of the partnership's loss for the year is $300,000.The taxpayer will report AGI of

Tax Research

Corporate Formations and Capital Structure

The Corporate Income Tax

Corporate Nonliquidating Distributions

Other Corporate Tax Levies

Corporate Liquidating Distributions

Corporate Acquisitions and Reorganizations

Consolidated Tax Returns

Partnership Formation and Operation

Special Partnership Issues

S Corporations

The Gift Tax

The Estate Tax

Income Taxation of Trusts and Estates

Administrative Procedures

U.S. Taxation of Foreign-Related Transactions

an Introduction to Taxation

Determination of Tax

Gross Income: Inclusions

Gross Income: Exclusions

Property Transactions: Capital Gains and Losses

Deductions and Losses

Business Expenses and Deferred Compensation

Itemized Deductions

Depreciation,cost Recovery,amortization,and Depletion

Accounting Periods and Methods

Property Transactions: Nontaxable Exchanges

Property Transactions: Sec1231 and Recapture

Special Tax Computation Methods,tax Credits,and Payment of Tax

Tax Research

Corporations

Partnerships and S Corporations

Taxes and Investment Planning

Filters