Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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?

Accepted Answer

A) $195,000 
B) $200,000 
C) $240,000 
D) $245,000 
E) None of the above 
A) $195,000 
B) $200,000 
C) $240,000 
D) $245,000 
E) None of the above

Question 3

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

Accepted Answer

In a disposition of a taxpayer

Question 4

Anne sells a rental house for $100,000 (adjusted basis of $55,000).During her ownership,$60,000 of losses have been suspended under the passive activity loss rules.Determine the tax treatment to Anne on the disposition of the property.

Accepted Answer

Because Anne disposes of her entire inte

Question 5

Jack owns a 10% interest in a partnership (not real estate) in which his at-risk amount is $42,000 at the beginning of the year.During the year,the partnership borrows $80,000 on a nonrecourse note and incurs a loss of $60,000 from operations.Jack's at-risk amount at the end of the year is $44,000.

Accepted Answer

A) True 
 B)False

Question 6

In 2015,Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2015 and $100,000 in 2016,Kipp's share being $60,000 in 2015 and $30,000 in 2016.How much of the losses from the partnership can Kipp deduct assuming he owns no other investments and does not participate in the partnership's operations?

Accepted Answer

A) $0 in 2015;$30,000 in 2016. 
B) $60,000 in 2015;$30,000 in 2016. 
C) $60,000 in 2015;$5,000 in 2016. 
D) $60,000 in 2015;$0 in 2016. 
E) None of the above. 
A) $0 in 2015;$30,000 in 2016. 
B) $60,000 in 2015;$30,000 in 2016. 
C) $60,000 in 2015;$5,000 in 2016. 
D) $60,000 in 2015;$0 in 2016. 
E) None of the above.

Question 7

Judy owns a 20% interest in a partnership (not real estate) in which her at-risk amount was $35,000 at the beginning of the year.The partnership borrowed $50,000 on a recourse note and made a $40,000 profit during the year.Her at-risk amount at the end of the year is $43,000.

Accepted Answer

A) True 
 B)False

Question 8

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.

Accepted Answer

A) Neither store is a passive activity. 
B) Both stores are passive activities. 
C) Only the bicycle rental store is a passive activity. 
D) Only the music store is a passive activity. 
E) None of the above. 
A) Neither store is a passive activity. 
B) Both stores are passive activities. 
C) Only the bicycle rental store is a passive activity. 
D) Only the music store is a passive activity. 
E) None of the above.

Question 9

Match the treatment for the following types of transactions.
a.The losses are allowed in the years in which gain is recognized.b.Suspended losses are allowed to offset the income from the activity, other passive activities, or active income.c.Suspended losses are allowed to the taxpayer to the extent they exceed the amount, if any, of the step-up in basis allowed.d.Any suspended losses may be used in the current year.e.The suspended losses are added to the basis of the property.f.No correct choice is given.
-Treatment of an installment sale of a passive activity.

Accepted Answer

The answer of Match the treatment for the following types...

Question 10

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:

Accepted Answer

A) Vic has an at-risk amount in the activity of $120,000 and a suspended passive loss of $80,000. 
B) Vic has an at-risk amount in the activity of $200,000 and a suspended passive loss of $80,000. 
C) Vic has an at-risk amount in the activity of $120,000 and no suspended passive loss. 
D) Vic has an at-risk amount in the activity of $200,000 and no suspended passive loss. 
E) None of the above. 
A) Vic has an at-risk amount in the activity of $120,000 and a suspended passive loss of $80,000. 
B) Vic has an at-risk amount in the activity of $200,000 and a suspended passive loss of $80,000. 
C) Vic has an at-risk amount in the activity of $120,000 and no suspended passive loss. 
D) Vic has an at-risk amount in the activity of $200,000 and no suspended passive loss. 
E) None of the above.

Question 11

Maria,who owns a 50% interest in a restaurant,has been a material participant in the restaurant activity for the last 20 years.She retired from the restaurant at the end of last year and will not participate in the restaurant activity in the future.However,she continues to be a material participant in a retail store in which she is a 50% partner.The restaurant operations produce a loss for the current year,and Maria's share of the loss is $80,000.Her share of the income from the retail store is $150,000.She does not own interests in any other activities.

Accepted Answer

A) Maria cannot deduct the $80,000 loss from the restaurant because she is not a material participant. 
B) Maria can offset the $80,000 loss against the $150,000 of income from the retail store. 
C) Maria will not be able to deduct any losses from the restaurant until she has been retired for at least three years. 
D) Assuming Maria continues to hold the interest in the restaurant,she will always treat the losses as active. 
E) None of the above. 
A) Maria cannot deduct the $80,000 loss from the restaurant because she is not a material participant. 
B) Maria can offset the $80,000 loss against the $150,000 of income from the retail store. 
C) Maria will not be able to deduct any losses from the restaurant until she has been retired for at least three years. 
D) Assuming Maria continues to hold the interest in the restaurant,she will always treat the losses as active. 
E) None of the above.

Question 12

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?

Accepted Answer

A) Ted's nondeductible loss of $50,000 can be carried over and used in the future (subject to the at-risk provisions). 
B) If Ted has taxable income of $50,000 from the partnership in the current year and no other transactions that affect his at-risk amount,he can use all of the $50,000 loss carried over. 
C) Since Ted has only $100,000 of capital at risk,he cannot deduct more than $100,000 against his other income. 
D) None of the above is incorrect. 
A) Ted's nondeductible loss of $50,000 can be carried over and used in the future (subject to the at-risk provisions). 
B) If Ted has taxable income of $50,000 from the partnership in the current year and no other transactions that affect his at-risk amount,he can use all of the $50,000 loss carried over. 
C) Since Ted has only $100,000 of capital at risk,he cannot deduct more than $100,000 against his other income. 
D) None of the above is incorrect.

Question 13

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.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) If 60% of Tess's gross income is from apartment rentals and 40% is from the restaurant,the rental operation and the restaurant business must be treated as separate activities. 
B) If 95% of Tess's gross income is from apartment rentals and 5% is from the restaurant,she may treat the rental operation and the restaurant business as a single activity that is a rental activity. 
C) If 5% of Tess's gross income is from apartment rentals and 95% is from the restaurant,she may treat the rental operation and the restaurant business as a single activity that is not a rental activity. 
D) If 98% of Tess's gross income is from apartment rentals and 2% is from the restaurant,the rental operation and the restaurant business must be treated as a single activity that is not a rental activity. 
E) None of the above. 
A) If 60% of Tess's gross income is from apartment rentals and 40% is from the restaurant,the rental operation and the restaurant business must be treated as separate activities. 
B) If 95% of Tess's gross income is from apartment rentals and 5% is from the restaurant,she may treat the rental operation and the restaurant business as a single activity that is a rental activity. 
C) If 5% of Tess's gross income is from apartment rentals and 95% is from the restaurant,she may treat the rental operation and the restaurant business as a single activity that is not a rental activity. 
D) If 98% of Tess's gross income is from apartment rentals and 2% is from the restaurant,the rental operation and the restaurant business must be treated as a single activity that is not a rental activity. 
E) None of the above.

Question 15

Raul is married and files a joint tax return.His current investment interest expense of $95,000 is related to a loan used to purchase a parcel of unimproved land.Income from investments [dividends (not qualified) and interest] total $18,000.Raul paid $5,000 of real estate taxes on the unimproved land.He also has a $4,500 net long-term capital gain from the sale of another parcel of unimproved land.Raul's maximum investment interest deduction for the year is:

Accepted Answer

A) $95,000. 
B) $18,000. 
C) $17,500. 
D) $13,000. 
E) None of the above. 
A) $95,000. 
B) $18,000. 
C) $17,500. 
D) $13,000. 
E) None of the above.

Question 16

Matt has three passive activities and has at-risk amounts in excess of $100,000 for each.During the year,the activities produced the following income (losses). Activity A ($60,000) Activity B (40,000) Activity C 75,000 Net passive loss ($25,000) Matt's suspended losses are as follows:

Accepted Answer

A) $25,000 is allocated to C;$0 to A and B. 
B) $12,500 is allocated to A;$12,500 to B. 
C) $15,000 is allocated to A;$10,000 to B. 
D) $8,333 is allocated to A,B,and C. 
E) None of the above. 
A) $25,000 is allocated to C;$0 to A and B. 
B) $12,500 is allocated to A;$12,500 to B. 
C) $15,000 is allocated to A;$10,000 to B. 
D) $8,333 is allocated to A,B,and C. 
E) None of the above.

Question 17

Jackson Company 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 Jackson is a personal service corporation,it may deduct $34,000 of the passive loss.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) The similarities and differences in types of business. 
B) The extent of common control. 
C) The extent of common ownership. 
D) The geographic location. 
E) All of the above. 
A) The similarities and differences in types of business. 
B) The extent of common control. 
C) The extent of common ownership. 
D) The geographic location. 
E) All of the above.

Question 19

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.

Accepted Answer

A) The computer consulting business is a passive activity but the apartment building is not. 
B) The apartment building is a passive activity but the computer consulting business is not. 
C) Both the apartment building and the computer consulting business are passive activities. 
D) Neither the apartment building nor the computer consulting business is a passive activity. 
E) None of the above. 
A) The computer consulting business is a passive activity but the apartment building is not. 
B) The apartment building is a passive activity but the computer consulting business is not. 
C) Both the apartment building and the computer consulting business are passive activities. 
D) Neither the apartment building nor the computer consulting business is a passive activity. 
E) None of the above.

Question 20

Josh has investments in two passive activities.Activity A (acquired three years ago) produces income of $30,000 this year,while Activity B (acquired two years ago) produces a loss of $50,000.What is the amount of Josh's suspended loss for the year?

Accepted Answer

A) $0 
B) $18,000 
C) $20,000 
D) $50,000 
E) None of the above 
A) $0 
B) $18,000 
C) $20,000 
D) $50,000 
E) None of the above

Exam 11: Investor Losses

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

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

Anne sells a rental house for $100,000 (adjusted basis of $55,000).During her ownership,$60,000 of losses have been suspended under the passive activity loss rules.Determine the tax treatment to Anne on the disposition of the property.

Jack owns a 10% interest in a partnership (not real estate) in which his at-risk amount is $42,000 at the beginning of the year.During the year,the partnership borrows $80,000 on a nonrecourse note and incurs a loss of $60,000 from operations.Jack's at-risk amount at the end of the year is $44,000.

Judy owns a 20% interest in a partnership (not real estate) in which her at-risk amount was $35,000 at the beginning of the year.The partnership borrowed $50,000 on a recourse note and made a $40,000 profit during the year.Her at-risk amount at the end of the year is $43,000.

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:

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?

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.

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

Matt has three passive activities and has at-risk amounts in excess of $100,000 for each.During the year,the activities produced the following income (losses). Activity A ($60,000) Activity B (40,000) Activity C 75,000 Net passive loss ($25,000) Matt's suspended losses are as follows:

Jackson Company 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 Jackson is a personal service corporation,it may deduct $34,000 of the passive loss.

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

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.

Josh has investments in two passive activities.Activity A (acquired three years ago) produces income of $30,000 this year,while Activity B (acquired two years ago) produces a loss of $50,000.What is the amount of Josh's suspended loss for the year?

An Introduction to Taxation and Understanding the Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation, cost Recovery, amortization, and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Tax Credits and Payments

Property Transactions: Determination of Gain or Loss, basis Considerations, and Nontaxabl

Property Transactions: Capital Gains and Losses, section 1231 and Recapture Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Corporations: Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

Family Tax Planning

Income Taxation of Trusts and Estates

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