Exam 11: Investor Losses

Sarah purchased for $100,000 a 10% interest in a business venture that is not subject to the passive activity rules.During the first year, her share of the entity's loss was $120,000.At the beginning of the second year, the entity obtained $800,000 of recourse financing.During the second year, Sarah withdrew cash of $20,000, and her share of the entity's loss was $25,000.Calculate the amount of loss that Sarah may claim in each of the two years and determine her at-risk amount at the end of each year.

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.

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?

David participates 580 hours in an activity during the year; others participate for 1,400 hours.David is a material participant in the activity.

In the current year, Kenny has a $35,000 loss from a real estate rental activity.Kenny provides 1,000 hours of service to that activity, which is more than half of his working hours for the year.Kenny can deduct the $35,000 loss.

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.

Describe the general rules that limit the deduction of investment interest expense.

Identify from the list below the type of disposition of a passive activity where the taxpayer keeps the suspended losses of the disposed activity and utilizes them on a subsequent taxable disposition.

List the taxpayers that are subject to the passive loss rules and summarize the general impact of these rules on these taxpayers.

Rick, a computer consultant, owns a separate business (not real estate) in which he participates.He has one employee who works part-time in the business.

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

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.Harry may deduct $9,500 of investment interest expense this year and carry forward $6,000 to future years.

David earned investment income of $20,000, incurred investment interest expense of $12,000, and other investment expenses of $9,000 during the current year.David can deduct $12,000 of investment interest for this year.

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.

Bonnie owns and actively participates in the operations of an apartment building that produces a $40,000 loss during the year.In addition, she has AGI of $100,000 from an active business.Her at-risk amount in the apartment building is $200,000.She may deduct $25,000 of the loss in the current year, while the remaining $15,000 is a suspended passive loss.

Art's at-risk amount in a passive activity was $60,000 at the beginning of 2011.His loss from the activity in 2011 is $80,000, and he had no passive activity income during the year. Art had $20,000 of passive income from the activity in 2012.Under the passive loss rules, Art's suspended loss at the end of 2012 is:

Samantha sells a passive activity (adjusted basis of $50,000) for $90,000.Suspended losses attributable to this property total $30,000.The realized gain and the taxable gain are:

Stan, a computer lab manager, earns a salary of $80,000 and receives $25,000 in dividends and interest during the year.In addition, he incurs a loss of $40,000 from an investment in a non-real estate passive activity.His at-risk amount in the activity at the beginning of the year is $55,000.What is Stan's adjusted gross income for this year?

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:

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.