Exam 11: Investor Losses

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 while his consulting practice will show a profit.Ethan files a joint return with his wife whose salary is $125,000.The income and losses from the following ventures is considered active and not subject to the passive loss limitations:

Josh has investments in two passive activities.Activity A,acquired three years ago,produces income in the current year of $60,000.Activity B,acquired last year,produces a loss of $100,000 in the current year.At the beginning of this year,Josh's at-risk amounts in Activities A and B are $10,000 and $100,000,respectively.What is the amount of Josh's suspended passive loss with respect to these activities at the end of the current year?

Pat sells a passive activity for $100,000 that has an adjusted basis of $55,000.During the years of her ownership,$60,000 of losses have been incurred that were suspended under the passive activity loss rules.In addition,the passive activity generated tax credits of $10,000 that were not utilized and suspended.Determine the tax treatment to Pat on the disposition of the property.

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 a disposition of a passive activity at death.

Dena owns interests in five businesses and has full-time employees in each business.She participates for 100 hours in Activity A,120 hours in Activity B,130 hours in Activity C,140 hours in Activity D,and 125 hours in Activity E.

Match the term with the correct response. More than one response may be correct. a.Taxpayer devotes time aggregating more than 500 hours in all significant participation activities during the year.b.Participates in making management decisions in a significant and bonafide sense.c.One in which the individual's participation equals more than 100 hours during the year.d.Taxpayer devotes time in the activity which constitutes substantially all of the participation in the activity of all individuals.e.Both options a. and d. are correct.f.No correct choice is given. -At-risk amount.

If an owner participates for more than 500 hours in a bicycle rental activity located at a beach resort,any loss from that activity is treated as an active loss that can offset active income.

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

Which of the following is not a factor that should be considered in determining whether an activity is treated as an appropriate economic unit?

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 loss this year.

In 2014,Kelly earns a salary of $200,000 and invests $40,000 for a 20% interest in a partnership not subject to the passive loss rules.Through the use of $800,000 of nonrecourse financing,the partnership acquires assets worth $1 million.The activity produces a loss of $150,000,of which Kelly's share is $30,000.In 2015,Kelly's share of the loss from the partnership is $15,000.How much of the loss from the partnership can Kelly deduct?

In 2015,Arnold 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 Arnold's share.Which of the following statements is incorrect?

During the current year,Ryan performs personal services as follows: 700 hours in his management consulting practice,650 hours in a real estate development business,and 550 hours in an apartment leasing operation.He expects that losses will be realized from the two real estate ventures while his consulting practice will show a profit.Ryan files a joint return with his wife whose salary is $125,000.Discuss the character and treatment of the income and losses generated by these activities.

Leigh,who owns a 50% interest in a sporting goods store,was a material participant in the activity for the last fifteen 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.

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 loss.

When determining whether an individual is a material participant,participation by an owner's spouse generally counts.

Harry earned investment income of $18,500,incurred investment interest expense of $15,500,and other investment expenses of $9,000 during the current year.He does not itemize his personal deductions.Harry may deduct $9,500 of investment interest expense this year and carry forward $6,000 to future years.

Kelly,who earns a yearly salary of $120,000,sold an activity with a suspended passive loss of $44,000.The activity was sold at a loss and Kelly has no other passive activities.The suspended loss is not deductible.

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

What special passive loss treatment is available to real estate activities?