Question 1

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.

Accepted Answer

A) True 
 B)False  True

Question 2

Sherri owns an interest in a business that is not a passive activity and in which she has $20,000 at risk.If the business incurs a loss from operations during the year and her share of the loss is $32,000,this loss will be fully deductible.

Accepted Answer

A) True 
 B)False  False

Question 3

Paula owns four separate activities.She elects not to group them together as a single activity under the "appropriate economic unit" standard.Paula participates for 130 hours in Activity A,115 hours in Activity B,260 hours in Activity C,and 100 hours in Activity D.She has one employee,who works 125 hours in Activity D.Which of the following statements is correct?

Accepted Answer

A) Activities A,B,C,and D are all significant participation activities. 
B) Paula is a material participant with respect to Activities A,B,C,and D. 
C) Paula is not a material participant with respect to Activities A,B,C,and D. 
D) Losses from all of the activities can be used to offset Paula's active income. 
E) None of the above. 
A) Activities A,B,C,and D are all significant participation activities. 
B) Paula is a material participant with respect to Activities A,B,C,and D. 
C) Paula is not a material participant with respect to Activities A,B,C,and D. 
D) Losses from all of the activities can be used to offset Paula's active income. 
E) None of the above. E

Question 4

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.

Accepted Answer

A) If Charles elects to treat both departments as a single activity,he cannot offset the $60,000 loss against the $100,000 income. 
B) Charles may not treat Department A and Department B as separate activities because they are parts of one business. 
C) If Charles elects to treat the two departments as separate activities,he can offset the $60,000 loss against the $100,000 income. 
D) If Charles elects to treat both departments as a single activity,he can offset the $60,000 loss against the $100,000 income. 
E) None of the above. 
A) If Charles elects to treat both departments as a single activity,he cannot offset the $60,000 loss against the $100,000 income. 
B) Charles may not treat Department A and Department B as separate activities because they are parts of one business. 
C) If Charles elects to treat the two departments as separate activities,he can offset the $60,000 loss against the $100,000 income. 
D) If Charles elects to treat both departments as a single activity,he can offset the $60,000 loss against the $100,000 income. 
E) None of the above.

Question 5

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 6

Tom participates for 100 hours in Activity A and 450 hours in Activity B,both of which are nonrental businesses.Both activities are active.

Accepted Answer

A) True 
 B)False

Question 7

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?

Accepted Answer

The basic issue relates to how the car r

Question 8

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.

Accepted Answer

The answer of Match the term with the correct response....

Question 9

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 10

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,she can deduct $25,000 of the loss.

Accepted Answer

A) True 
 B)False

Question 11

Mary Jane participates for 100 hours during the year in an activity she owns.She has no employees and is the only participant in the activity.The activity is a significant participation activity.

Accepted Answer

A) True 
 B)False

Question 12

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 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 activity income.

Accepted Answer

A) True 
 B)False

Question 14

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 activity 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 15

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 16

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.

Accepted Answer

A) True 
 B)False

Question 17

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.
-Significant participation activity.

Accepted Answer

The answer of Match the term with the correct response....

Question 18

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.

Accepted Answer

A) If Ned participates for 120 hours and the employee participates for 120 hours during the year,Ned does not qualify as a material participant. 
B) If Ned participates for 95 hours and the employee participates for 5 hours during the year,Ned probably does not qualify as material participant. 
C) If Ned participates for 500 hours and the employee participates for 520 hours during the year,Ned qualifies as material participant. 
D) If Ned participates for 600 hours and the employee participates for 2,000 hours during the year,Ned qualifies as a material participant. 
E) None of the above. 
A) If Ned participates for 120 hours and the employee participates for 120 hours during the year,Ned does not qualify as a material participant. 
B) If Ned participates for 95 hours and the employee participates for 5 hours during the year,Ned probably does not qualify as material participant. 
C) If Ned participates for 500 hours and the employee participates for 520 hours during the year,Ned qualifies as material participant. 
D) If Ned participates for 600 hours and the employee participates for 2,000 hours during the year,Ned qualifies as a material participant. 
E) None of the above.

Question 19

Caroyl 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.

Accepted Answer

A) Tim's adjusted basis is $80,000,and Tim can deduct the $20,000 of suspended losses in the future. 
B) Tim's adjusted basis is $80,000. 
C) Tim's adjusted basis is $50,000,and the suspended losses are lost. 
D) Tim's adjusted basis is $50,000,and Tim can deduct the $20,000 of suspended losses in the future. 
E) None of the above. 
A) Tim's adjusted basis is $80,000,and Tim can deduct the $20,000 of suspended losses in the future. 
B) Tim's adjusted basis is $80,000. 
C) Tim's adjusted basis is $50,000,and the suspended losses are lost. 
D) Tim's adjusted basis is $50,000,and Tim can deduct the $20,000 of suspended losses in the future. 
E) None of the above.

Question 20

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

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.

Sherri owns an interest in a business that is not a passive activity and in which she has $20,000 at risk.If the business incurs a loss from operations during the year and her share of the loss is $32,000,this loss will be fully deductible.

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.

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.

Tom participates for 100 hours in Activity A and 450 hours in Activity B,both of which are nonrental businesses.Both activities are active.

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.

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,she can deduct $25,000 of the loss.

Mary Jane participates for 100 hours during the year in an activity she owns.She has no employees and is the only participant in the activity.The activity is a significant participation activity.

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 activity income.

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 activity loss ($25,000) Matt's suspended losses are as follows:

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

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.

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.

Caroyl 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.

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.

An Introduction to Taxation and Understanding the Federal Law

Working With the Tax Law

Tax Formula and Tax Determination an Overview of Property Transactions

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

Deduction and Losses Certain Itemized Deductions

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions Determination of Gain and Loss and Basic Considerations

Property Transactions Nontaxable Exchanges

Property Transactions Capital Gains and Losses

Property Transactions Section 1231 and Recapture Provisions

Accounting Periods and Methods

Deferred Compensation

Corporations and Partnerships

Filters

Exam 11: Investor Losses

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.

Sherri owns an interest in a business that is not a passive activity and in which she has $20,000 at risk.If the business incurs a loss from operations during the year and her share of the loss is $32,000,this loss will be fully deductible.

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.

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.

Tom participates for 100 hours in Activity A and 450 hours in Activity B,both of which are nonrental businesses.Both activities are active.

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.

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,she can deduct $25,000 of the loss.

Mary Jane participates for 100 hours during the year in an activity she owns.She has no employees and is the only participant in the activity.The activity is a significant participation activity.

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 activity income.

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 activity loss ($25,000) Matt's suspended losses are as follows:

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

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.

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.

Caroyl 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.

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.

An Introduction to Taxation and Understanding the Federal Law

Working With the Tax Law

Tax Formula and Tax Determination an Overview of Property Transactions

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

Deduction and Losses Certain Itemized Deductions

Alternative Minimum Tax

Tax Credits and Payment Procedures

Property Transactions Determination of Gain and Loss and Basic Considerations

Property Transactions Nontaxable Exchanges

Property Transactions Capital Gains and Losses

Property Transactions Section 1231 and Recapture Provisions

Accounting Periods and Methods

Deferred Compensation

Corporations and Partnerships

Filters