Question 1

During the current year, Terry has a short-term capital loss of $9,000 and a long-term capital gain of $3,000. Due to these transactions Terry reports

Accepted Answer

A) A capital loss deduction of $3,000 and a loss carryforward of $3,000 
B) A capital loss deduction of $3,000 and a loss carryforward of $6,000. 
C) A capital loss deduction of $9,000. 
D) A capital gain of $3,000 and a loss carryforward of $9,000. 
E) A capital loss deduction of $6,000 
A) A capital loss deduction of $3,000 and a loss carryforward of $3,000 
B) A capital loss deduction of $3,000 and a loss carryforward of $6,000. 
C) A capital loss deduction of $9,000. 
D) A capital gain of $3,000 and a loss carryforward of $9,000. 
E) A capital loss deduction of $6,000

Question 2

A transaction loss occurs when an asset is disposed of at less than its basis.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following events is a "casualty" loss?
I.Diamonds stolen by thief, reported to police
II.Florida orange trees killed by a freeze.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 4

The wash sale provisions apply to which of the following?
I.Tom realizes an $8,000 loss on the June 17, 2018, sale of 650 shares of Roadrunner Corporation common stock. He replaces the 650 shares with Hawke Inc., stock on July 8, 2018.
II.Rosie realizes a $6,000 loss on the December 29, 2017, sale of 40 Billings corporate bonds. Each bond has a face value of $1,000. She replaces the Billings corporate bonds with 30 Redeemer corporate bonds, each with a face value of $1,000 on January 16, 2018. The Redeemer bonds have the same interest rate, maturity date, but a different bond rating (AAA) as the Billings bonds.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 5

Match each statement with the correct term below.
-Active participant

Accepted Answer

A) A loss that is generally not deductible. 
B) The borrower is personally liable for the debt. 
C) The loss is used to offset income in future periods. 
D) A liability that is only secured by the underlying property. 
E) The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business. 
A) A loss that is generally not deductible. 
B) The borrower is personally liable for the debt. 
C) The loss is used to offset income in future periods. 
D) A liability that is only secured by the underlying property. 
E) The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business.

Question 6

Match each statement with the correct term below.
-Capital loss

Accepted Answer

A) Limited to $3,000 annually for individuals. 
B) When an asset is disposed of for less than its basis. 
C) An excess of business deductions over business income. 
D) A trade or business in which the taxpayer is not a material participant. 
E) A loss that results from some sudden, unexpected, or unusual event.
F)Any asset that is not a receivable, inventory, or depreciable or real property used in a trade or business. 
A) Limited to $3,000 annually for individuals. 
B) When an asset is disposed of for less than its basis. 
C) An excess of business deductions over business income. 
D) A trade or business in which the taxpayer is not a material participant. 
E) A loss that results from some sudden, unexpected, or unusual event.
F)Any asset that is not a receivable, inventory, or depreciable or real property used in a trade or business.

Question 7

Darien owns a passive activity that has a basis of $36,000 and a suspended loss of $22,000. If Darien dies during the year when the passive activity has a fair market value of $52,000, how will the information be presented on his tax return?
I.Darien will report an ordinary loss of $6,000.
II.Darien will report a capital gain of $16,000.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 8

Dwight owns an apartment complex that has a $30,000 loss. His adjusted gross income is $85,000 before the loss. Since he qualifies as an active participant he may deduct $25,000.

Accepted Answer

A) True 
 B)False

Question 9

Match each statement with the correct term below.
-Material participant

Accepted Answer

A) A loss that is generally not deductible. 
B) The borrower is personally liable for the debt. 
C) The loss is used to offset income in future periods. 
D) A liability that is only secured by the underlying property. 
E) The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business. 
A) A loss that is generally not deductible. 
B) The borrower is personally liable for the debt. 
C) The loss is used to offset income in future periods. 
D) A liability that is only secured by the underlying property. 
E) The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business.

Question 10

During the current year, Diane disposes of Fine Foods Limited Partnership, at a gain of $12,000. Diane's adjusted gross income from non-passive sources is $120,000. She has a suspended loss from Fine Foods of $22,000, and a loss from other passive activities of $4,500. What is the amount of Diane's adjusted gross income for the current year?

Accepted Answer

A) $95,550 
B) $105,500 
C) $110,000 
D) $115,500 
E) $120,000 
A) $95,550 
B) $105,500 
C) $110,000 
D) $115,500 
E) $120,000

Question 11

For each of the following situations, determine whether the item is deductible, and discuss any limitations that might be placed on the deduction.
Rioters damage Margarita's business building, which has an adjusted basis of $50,000, during the current year.
a.Assume the building is totally destroyed. The cost of replacing the building is estimated to be $55,000. Margarita's insurance reimburses her $32,000.
b.Assume the building is severely damaged. Before the riot, the building is worth $55,000. The insurance adjuster estimates the value of the building after the damage at $20,000. Margarita's insurance reimbursed her $32,000.

Accepted Answer

a. Margarita can deduct @#LAT-DLM& as a business c

Question 12

Hamlet, a calendar year taxpayer, owns 1,000 shares of Vanity Corporation common stock, which he purchased two years ago for $4,000. Hamlet sells all of his shares on December 29, 2018, for $2,500. On January 23, 2019, he purchases 600 shares of Vanity Corporation common stock. What is the amount of Hamlet's recognized loss in 2018?

Accepted Answer

A) $- 0 - 
B) $600 
C) $900 
D) $1,500 
E) $4,000 
A) $- 0 - 
B) $600 
C) $900 
D) $1,500 
E) $4,000

Question 13

Leon is allowed to deduct all the current and suspended losses on his passive activity if he sells his entire interest in the passive activity during the year.

Accepted Answer

A) True 
 B)False

Question 14

Lisa sells some stock she purchased several years ago for $10,000 to her brother Bart for $8,000. One year later Bart sells the stock for $12,000. The tax consequences to Lisa and Bart are:
?
$\begin{array}{cc}&&\text { Lisa }&&&& \text { Bart }\end{array}$
A)$\begin{array}{ll}\$ 2,000 \text { loss } &&& \$ 4,000 \text { gain } \\end{array}$
B)$\begin{array}{ll}\text {  No gain or loss } & \$ 4,000 \text { gain } \\end{array}$
C)$\begin{array}{ll}\text {  No gain or loss } & \$ 2,000 \text { gain } \\end{array}$
D)$\begin{array}{ll} \$ 2,000 \text { gain } && \text { No gain or loss } \\end{array}$
E)$\begin{array}{ll} \$ 2,000 \text { loss } &&& \$ 2,000 \text { gain }
\end{array}$

Accepted Answer

The answer of Lisa sells some stock she purchased several...

Question 15

Salvador owns a passive activity that has a basis of $44,000 and a suspended loss of $18,000. Salvador's taxable income from active and portfolio income is $55,000. If Salvador's sells the passive activity for $56,000 how will he report the transaction on his tax return?
I.Salvador will report an ordinary loss of $18,000.
II.Salvador will report a capital gain of $12,000.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 16

Which of the following is true concerning capital losses and net operating losses for corporations:
​
Capital loss Net operating loss

Accepted Answer

A) Carried back 5 years Carried back 2 years 
B) Carried back 5 years Carried forward indefinitely 
C) Carried back 3 years Carried forward indefinitely 
D) Carried back 5 years Carried forward 5 years 
E) Carried back 3 years Carried forward 5 years 
A) Carried back 5 years Carried back 2 years 
B) Carried back 5 years Carried forward indefinitely 
C) Carried back 3 years Carried forward indefinitely 
D) Carried back 5 years Carried forward 5 years 
E) Carried back 3 years Carried forward 5 years

Question 17

Mark has an adjusted gross income of $154,000. Not included in his adjusted gross income is a $16,000 loss from a passive activity. Which of the following statements regarding the effect of the passive loss on his adjusted gross income is/are correct?
I.If the activity does not involve rental real estate, he can only deduct the loss as a miscellaneous itemized deduction.
II.If the activity is rental real estate and Mark is an active participant, he can deduct the $16,000 loss for adjusted gross income.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 18

Match each statement with the correct term below.
-Casualty loss

Accepted Answer

A) Limited to $3,000 annually for individuals. 
B) When an asset is disposed of for less than its basis. 
C) An excess of business deductions over business income. 
D) A trade or business in which the taxpayer is not a material participant. 
E) A loss that results from some sudden, unexpected, or unusual event.
F)Any asset that is not a receivable, inventory, or depreciable or real property used in a trade or business. 
A) Limited to $3,000 annually for individuals. 
B) When an asset is disposed of for less than its basis. 
C) An excess of business deductions over business income. 
D) A trade or business in which the taxpayer is not a material participant. 
E) A loss that results from some sudden, unexpected, or unusual event.
F)Any asset that is not a receivable, inventory, or depreciable or real property used in a trade or business.

Question 19

Travis is a 30% owner of 3 rental houses. He spends 625 hours a year managing the properties. In addition, he owns a 20% interest in a real estate business to which he devotes 1,800 hours a year. The rental units generate a total loss of $22,000, and Travis' adjusted gross income in the current year, before considering the rental properties, is $120,000. How much of the loss can Travis deduct?

Accepted Answer

A) $- 0 - 
B) $4,500 
C) $6,600 
D) $15,000 
E) $22,000 
A) $- 0 - 
B) $4,500 
C) $6,600 
D) $15,000 
E) $22,000

Question 20

Rosanna, a single taxpayer, owns 2,000 shares of qualifying small business stock that she purchased for $225,000. During the current year, she sells 800 of the shares for $30,000. If this is the only stock Rosanna sells during the year, what can she deduct as an ordinary and capital loss?
​
Ordinary loss Capital loss

Accepted Answer

A) $58,000 $- 0 - 
B) $50,000 $3,000 
C) $50,000 $10,000 
D) $- 0 - $3,000 
E) $- 0 - $60,000 
A) $58,000 $- 0 - 
B) $50,000 $3,000 
C) $50,000 $10,000 
D) $- 0 - $3,000 
E) $- 0 - $60,000

During the current year, Terry has a short-term capital loss of $9,000 and a long-term capital gain of $3,000. Due to these transactions Terry reports

A transaction loss occurs when an asset is disposed of at less than its basis.

Which of the following events is a "casualty" loss? I.Diamonds stolen by thief, reported to police II.Florida orange trees killed by a freeze.

Match each statement with the correct term below. -Active participant

Match each statement with the correct term below. -Capital loss

Dwight owns an apartment complex that has a $30,000 loss. His adjusted gross income is $85,000 before the loss. Since he qualifies as an active participant he may deduct $25,000.

Match each statement with the correct term below. -Material participant

Leon is allowed to deduct all the current and suspended losses on his passive activity if he sells his entire interest in the passive activity during the year.

Which of the following is true concerning capital losses and net operating losses for corporations: Capital loss Net operating loss

Match each statement with the correct term below. -Casualty loss

Federal Income Taxation-An Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, Depletion, and Amortization

Property Dispositions

Non-Recognition Transactions

Choice of Business Entity-General Tax and Nontax Factorsformation

Choice of Business Entity-Operations and Distributions

Choice of Business Entity-Other Considerations

Tax Research

Filters

Exam 7: Losses-Deductions and Limitations

During the current year, Terry has a short-term capital loss of $9,000 and a long-term capital gain of $3,000. Due to these transactions Terry reports

A transaction loss occurs when an asset is disposed of at less than its basis.

Which of the following events is a "casualty" loss? I.Diamonds stolen by thief, reported to police II.Florida orange trees killed by a freeze. ​

Match each statement with the correct term below. -Active participant

Match each statement with the correct term below. -Capital loss

Dwight owns an apartment complex that has a $30,000 loss. His adjusted gross income is $85,000 before the loss. Since he qualifies as an active participant he may deduct $25,000.

Match each statement with the correct term below. -Material participant

Leon is allowed to deduct all the current and suspended losses on his passive activity if he sells his entire interest in the passive activity during the year.

Which of the following is true concerning capital losses and net operating losses for corporations: ​ Capital loss Net operating loss

Match each statement with the correct term below. -Casualty loss

Federal Income Taxation-An Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, Depletion, and Amortization

Property Dispositions

Non-Recognition Transactions

Choice of Business Entity-General Tax and Nontax Factorsformation

Choice of Business Entity-Operations and Distributions

Choice of Business Entity-Other Considerations

Tax Research

Filters

Which of the following events is a "casualty" loss? I.Diamonds stolen by thief, reported to police II.Florida orange trees killed by a freeze.

Which of the following is true concerning capital losses and net operating losses for corporations: Capital loss Net operating loss