Exam 11: Investor Losses

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: 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?

Kathy is a full-time educator, but she owns an apartment building and devotes 550 hours to managing the activity. All losses from the rental activity will be considered nonpassive and deductible against active income because she is a real estate professional.

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.

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

Discuss the treatment given to suspended passive activity losses and credits. What happens to an activity's unused losses and credits when the activity is sold?

Identify how the passive loss rules broadly classify various types of income and losses.Provide examples of each category.

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

Investment income can include gross income from interest, dividends, annuities, and royalties not derived in the ordinary course of a trade or business; income from a passive activity; and income from a real estate activity in which the taxpayer actively participates.

In the current year, Lucile, who has AGI of $70,000 before considering rental activities, is active in three separate real estate rental activities and is in the 28% tax bracket.She had $15,000 of losses from Activity A, $25,000 of losses from Activity B, and income of $20,000 from Activity A.Calculate her deductions and credits currently allowed and the suspended losses and credits. C.She also had $3,100 of tax credits from Activity

Jenny spends 32 hours a week, 50 weeks a year, operating a DVD rental store that she owns.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.

Pablo, who is single, has $95,000 of salary, $10,000 of income from a limited partnership, and a $27,000 passive loss from a real estate rental activity in which he actively participates.His modified adjusted gross income is $95,000.Of the $27,000 loss, how much is deductible?

Tony is married and files a joint tax return for 2012. He has investment interest expense of $95,000 for a loan made to him in 2012 to purchase a parcel of unimproved land. His income from investments [dividends (not qualified) and interest] totaled $18,000. Tony paid $3,600 of real estate taxes on the unimproved land. Tony also has a $4,500 net long-term capital gain from the sale of stock held as an investment. Calculate Tony's maximum investment interest deduction for 2012.

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

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.

Lucy dies owning a passive activity with an adjusted basis of $90,000.Its fair market value at that date is $145,000.Suspended losses relating to the property were $75,000.Which of the following statements is true?

Roger owns and actively participates in the operations of an apartment building which produces a $40,000 loss during the year.He has AGI of $150,000 from an active business.He may deduct $25,000 of the loss.

Last year, Wanda gave her daughter a passive activity (adjusted basis of $80,000; fair market value of $160,000) with suspended losses of $20,000. In the current year, her daughter realizes income of $10,000 from the activity.What are the tax effects to Wanda and her daughter?

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.

Ken has a $40,000 loss from an investment in a partnership in which he does not materially participate. He paid $30,000 for his interest. How much of the loss is disallowed by the at-risk rules? How much is disallowed by the passive loss rules?

In 2012, Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity. The partnership reported losses of $200,000 in 2012 and $100,000 in 2013, Kipp's share being $60,000 in 2012 and $30,000 in 2013. 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?