Exam 11: Investor Losses

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 income \ 10,000 Long-term capital gain on sale of stock 7,500 Real estate tax paid and deducted on investment property 500 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?

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.

Pablo, who is single, has $95,000 of salary, $10,000 of income from a limited partnership, and a $27,000 passive activity loss from a real estate rental activity in which he actively participates. His modified adjusted gross income is $95,000. Of the $27,000 loss, how much is deductible?

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

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?

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.

Lloyd, a life insurance salesman, earns a $400,000 salary in the current year. Because 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: Income(Loss) Tampa ice cream parlor (95 hours participation) \ 56,000 Tampa car repair shop (140 hours participation) (89,000) Portland ice cream parlor (90 hours participation) 34,000 Portland car repair shop (170 hours participation) (41,000) St. Louis car repair shop (180 hours participation) (15,000) 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?

In the current year, Louise invests $50,000 for a 20% interest in a passive activity. Her share of the loss this year is $10,000. If this is her only passive activity, the $10,000 loss from the activity this year is suspended for use in a future year.

In the current year, Kelly had a $35,000 loss from a real estate rental activity in which she is a 10% owner. If she is an active participant and if her modified AGI is $100,000 or less, she can deduct $25,000 of the loss.

Eric makes an installment sale of a passive activity having suspended losses of $40,000. He collects 25% of the sales price in the current year and will collect 25% in each of the next three years. Eric can deduct $10,000 of the passive activity loss this year.