Exam 11: Investor Losses

Individuals with modified AGI of $100,000 can deduct against active or portfolio income losses of up to $25,000 from real estate rental activities in which they actively participate.

Vail owns interests in a beauty salon,a natural foods store,and a tanning salon.Several full-time employees work at each of the enterprises.As of the end of November of the current year,Vail has worked 180 hours in the beauty salon,220 hours at the natural foods store,and 80 hours at the tanning salon.These three ventures collectively will produce income.Vail also owns one other passive activity that is producing a loss (a limited partnership in which she has reported no participation).How should Vail plan her activities for the remainder of the year?

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 sale of a passive activity where all of the realized gain or loss is recognized currently.

Wayne owns a small apartment building that produces a $45,000 loss during the year.His AGI before considering the rental loss is $85,000.Because Wayne is an active participant with respect to the rental activity,he may deduct the $45,000 loss.

Linda owns investments that produce portfolio income and Activity A that produces losses.From a tax perspective,Linda will be better off if Activity A is not passive.

Services performed by an employee are treated as being related to a real estate trade or business if the employee performing the services has more than a 5% ownership interest in the employer.

Hugh has four passive activities which generate the following income and losses in the current year. Activity Gain (Loss) A ($60,000) B (20,000) C (10,000) D 10,000 Total ($80,000) How much of the $80,000 net passive loss can Hugh deduct this year? Calculate the suspended losses (by activity).

Sandra acquired a passive activity three years ago.Until last year,the activity was profitable and her at-risk amount was $300,000.Last year,the activity produced a loss of $100,000,and in the current year,the loss is $50,000.Assuming Sandra has received no passive income in the current or prior years,her suspended passive loss from the activity is:

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.

Ned,a college professor,owns a separate business (not real estate) in which he participates in the current year.He has one employee who works part-time in the business.

Jenny spends 32 hours a week,50 weeks a year,operating a bicycle rental store that she owns at a resort community.She also owns a music store in another city that is operated by a full-time employee.Jenny spends 140 hours per year working at the music store.She elects not to group them together as a single activity under the "appropriate economic unit" standard.

Art's at-risk amount in a passive activity was $60,000 at the beginning of 2014.His loss from the activity in 2014 is $80,000,and he had no passive activity income during the year.Art had $20,000 of passive income from the activity in 2015.Under the passive loss rules,Art's suspended loss at the end of 2015 is:

Dick participates in an activity for 90 hours during the year.He has no employees and there are no other participants.Dick is a material participant.

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. -Material participation.

A taxpayer is considered to be a material participant in a significant participation activity if he or she spends at least 400 hours in the activity.

Judy incurred $58,500 of interest expense this year related to her investments.Her investment income includes $15,000 of interest,$9,000 of qualified dividends,and a $22,500 net capital gain on the sale of securities.The maximum amount of Judy's investment interest expense deduction for the year is:

Lloyd,a life insurance salesman,earns a $400,000 salary in the current year.As 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 2015,Joanne invested $90,000 for a 20% interest in a limited liability company (LLC) in which she is a material participant.The LLC reported losses of $340,000 in 2015 and $180,000 in 2016.Joanne's share of the LLC's losses was $68,000 in 2015 and $36,000 in 2016.How much of these losses can Joanne deduct?

Lindsey,an attorney,earns $125,000 from her law practice in the current year.In addition,she receives $50,000 in dividends and interest during the year.Further,she incurs a loss of $40,000 from an investment in a passive activity.What is Lindsey's AGI for the year after considering the passive investment?

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.