Exam 11: Investor Losses

Nora acquired passive activity A several years ago that until 2011 was profitable.However, the activity produced losses of $100,000 in 2011 and $50,000 in 2012.Nora had passive income from activity B of $40,000 in 2011 and $0 in 2012.How much loss is suspended from activity A in each year?

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

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?

Roxanne, who is single, has $125,000 of salary, $10,000 of income from a limited partnership, and a $26,000 passive loss from a real estate rental activity in which she actively participates.Her modified adjusted gross income is $125,000.Of the $26,000 loss, how much is deductible?

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?

Kim dies owning a passive activity with a basis of $75,000, a fair market value of $140,000, and suspended losses of $80,000.All of the $80,000 passive loss can be deducted on Kim's final income tax return.

Tom participates for 300 hours in Activity A and 250 hours in Activity B, both of which are nonrental businesses.Both activities are active.

In 2012, 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?

Describe the types of activities and taxpayers that are subject to the at-risk rules.

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

In the current year, Louise invests $50,000 for a 10% interest in a passive activity.Her share of the loss this year is $10,000.If this is her only passive activity, the $10,000 loss from the activity this year is suspended for use in a future year.

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.

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 income.

In the current year, Spring Corporation, a closely held personal service corporation, has $120,000 of passive losses, $70,000 of active business income, and $50,000 of portfolio income.How much of the passive loss may Spring deduct in the current year?

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.

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?

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.

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?

In the current year, Rich has a $40,000 loss from a business he owns.His at-risk amount at the end of the year, prior to considering the current year loss, is $24,000.He will be allowed to deduct the $40,000 loss this year if he is a material participant 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.