Exam 11: Investor Losses

Nell sells a passive activity with an adjusted basis of $45,000 for $105,000.Suspended losses attributable to this property total $45,000.The total gain and the taxable gain are:

Rachel acquired a passive activity several years ago.Until 2016, the activity was profitable, and Rachel's at-risk amount at the beginning of 2016 was $300,000.The activity produced losses of $80,000 in 2016, $50,000 in 2017, and $70,000 in 2018.In 2019, the activity produced income of $90,000.How much is Rachel's suspended passive activity loss at the beginning of 2020?

Vic's at-risk amount in a passive activity is $200,000 at the beginning of the current year.His current loss from the activity is $80,000.Vic had no passive activity income during the year.At the end of the current year:

During the current year, Harry earned investment income of $18,500.In addition, he incurred investment interest expense of $15,500 and other investment expenses of $9,000.Harry may deduct $9,500 of investment interest expense this year and carry forward $6,000 to future years.

Ramon incurred $83,100 of interest expense related to his investments this year.His investment income included $34,500 of interest and a $37,500 net capital gain on the sale of securities.Ramon has asked you to compute the amount of his deduction for investment interest, taking into consideration any options he might have.What is the maximum amount of Ramon's investment interest expense deduction in the current year?

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?

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

Carl, a physician, earns $200,000 from his medical practice in the current year.He receives $45,000 in dividends and interest during the year as well as $5,000 of income from a passive activity.In addition, he incurs a loss of $50,000 from an investment in a passive activity.What is Carl's AGI for the current year after considering the passive investment?

Melinda earns wages of $80,000, income from a limited partnership of $10,000, and a $30,000 passive activity loss from a real estate rental activity in which she actively participates.Her modified adjusted gross income is $80,000.Of the $30,000 loss, Melinda may deduct:

Jared earned investment income of $22,000 and incurred investment interest expense of $14,000 during the year.He incurred other investment expenses of $7,000 during the year.Jared may deduct $14,000 of investment interest in the current year.

Joyce, an architect, earns $100,000 from her practice in the current year.In addition, she receives $35,000 in dividends, capital gains, and annuity income during the year.Further, she incurs a loss of $35,000 from an investment in a passive activity.Joyce's AGI for the year after considering the passive investment is $100,000.

Match the term with the correct response.More than one response may be correct. -Material participation.

In the current year, Crow Corporation, a closely held C corporation that is not a personal service corporation, has $100,000 of passive activity losses, $80,000 of active business income, and $20,000 of portfolio income.How much of the passive activity loss may Crow deduct in the current year?

A taxpayer is considered to be a material participant if he or she spends more than 500 hours in the activity.

Tonya owns an interest in an activity (not real estate) that converted recourse financing to nonrecourse financing. Recapture of previously allowed losses is required if Tonya's at-risk amount is reduced below zero as a result of the debt restructuring.

Gray Company, a closely held C corporation, incurs a $50,000 loss on a passive activity during the year.The company has active income of $34,000 and portfolio income of $24,000.If Gray is not a personal service corporation, it may deduct $34,000 of the passive activity loss.

Which of the following decreases a taxpayer's at-risk amount?

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?

Charles owns a business with two separate departments.Department A produces $100,000 of income and Department B incurs a $60,000 loss.Charles participates for 550 hours in Department A and 100 hours in Department B.He has full-time employees in both departments.

In 2019, Wang invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Wang's share.Which of the following statements is incorrect?