Exam 11: Investor Losses

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

Tara owns a shoe store and a bookstore.Both businesses are operated in a mall.She also owns a restaurant across the street and a jewelry store several blocks away.

Which of the following factors should be considered in determining whether an activity is treated as an appropriate economic unit?

From January through November, Vern participated for 420 hours as a salesman in a partnership in which he owns a 50% interest.The partnership has four full-time employees.During December, Vern spends 110 hours cleaning the store and painting the walls in order to meet the material participation standards.Vern qualifies as a material participant.

Faye dies owning an interest in a passive activity property (adjusted basis of $150,000, suspended losses of $52,000, and a fair market value of $180,000).What, if any, can be deducted on her final income tax return?

Oriole Corporation has active income of $45,000 and a passive activity loss of $23,000 in the current year.Under an exception, Oriole can deduct the $23,000 loss if it is a personal service corporation.

Match the treatment for the following types of transactions. -Treatment of a disposition of a passive activity by gift.

Carol 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.

Roger owns and actively participates in the operations of an apartment building that produces a $40,000 loss during the year.He has AGI of $150,000 from an active business.He may deduct $25,000 of the loss.

Match the term with the correct response.More than one response may be correct. -At-risk amount.

Leigh, who owns a 50% interest in a sporting goods store, was a material participant in the activity for the last 15 years.She retired from the sporting goods store at the end of last year and will not participate in the activity in the future.However, she continues to be a material participant in an office supply store in which she is a 50% partner.The operations of the sporting goods store resulted in a loss for the current year and Leigh's share of the loss is $40,000.Leigh's share of the income from the office supply store is $75,000.She does not own interests in any other activities.

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.

Kathy, who is a real estate professional, owns an apartment building and devotes 550 hours to managing the activity. All losses from the rental activity will be considered nonpassive and deductible against active income.

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

Match the treatment for the following types of transactions. -Treatment of a sale of a passive activity for which all of the realized gain or loss is recognized currently.

George, an ophthalmologist, owns a separate business (not real estate) in which he participates.He has one employee who works part-time in the business.Which of the following statements is correct?

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.

Kim dies owning a passive activity with a basis of $75,000, a fair market value of $140,000, and suspended losses of $80,000.All of the $80,000 passive activity loss can be deducted on Kim's final income tax return.

Jed spends 32 hours a week, 50 weeks a year, operating a bicycle rental store that he owns at a resort community. He also owns a music store in another city that is operated by a full-time employee.He elects not to group them together as a single activity under the "appropriate economic unit" standard.Jed spends 40 hours per year working at the music store.

During the current year, Ethan performs personal services as follows: 800 hours in his information technology consulting practice, 625 hours in a real estate development business, and 510 hours in a condominium leasing operation.He expects that losses will be realized from the two real estate ventures and that his consulting practice will show a profit.Ethan files a joint return with his spouse whose salary is $125,000.The income and losses from the following ventures are considered active and not subject to the passive activity loss limitations: