Exam 11: Investor Losses

Rhonda participates for 95 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.

Dick participates in an activity for 90 hours during the year.He has no employees and there are no other participants.Dick is a material participant.

Kelly,who earns a yearly salary of $120,000,sold an activity with a suspended passive loss of $44,000.The activity was sold at a loss and Kelly has no other passive activities.The suspended loss is not deductible.

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.

Lucy participates for 405 hours in Activity A and 100 hours in Activity B,both of which are nonrental businesses.Both activities are passive.

When a taxpayer disposes of a passive activity by gift,what happens to any unused passive losses?

Jerry is a limited partner in a partnership that owns an amusement park.Although he participates for more than 500 hours in the park's operations,he is not considered a material participant.

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 2010,Jean earns a salary of $150,000 and invests $20,000 for a 20% interest in a partnership not subject to the passive loss rules.Through the use of $400,000 of nonrecourse financing,the partnership acquires assets worth $500,000.The activity produces a loss of $75,000,of which Jean's share is $15,000.In 2011,Jean's share of the loss from the partnership is $7,500.How much of the loss from the partnership can Jean deduct?

Gail exchanges passive Activity A,which has suspended losses of $15,000,for passive Activity B in a nontaxable exchange.The new owner of passive Activity A can offset the $15,000 suspended losses against passive income in the future.

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.

Wayne owns a small apartment building that produces a $45,000 loss during the year.His AGI before considering the rental loss is $85,000.Because Wayne is an active participant with respect to the rental activity,he may deduct the $45,000 loss.

Wolf Corporation has active income of $55,000 and a passive loss of $33,000 in the current year.Wolf cannot deduct the $33,000 loss if it is a closely held C corporation that is not a personal service corporation.

Lucy owns and actively participates in the operations of an apartment complex that produces a $50,000 loss during the year.Her modified AGI is $125,000 from an active business.Disregarding any at-risk limitation,she may deduct $25,000 of the loss,and the remaining $25,000 is a suspended passive loss.

Purple Corporation,a personal service corporation,earns active income of $600,000.The corporation receives $60,000 in dividends and incurs a loss of $100,000 from an investment in a passive activity acquired three years ago.What is Purple's income after considering the passive investment?

Explain how a taxpayer's at-risk amount in a business venture is adjusted periodically.

Kate dies owning a passive activity with an adjusted basis of $100,000.Its fair market value at that date is $130,000.Suspended losses relating to the property were $45,000.

In 2010,Joanne invested $90,000 for a 20% interest in a limited liability company (LLC)in which she is a material participant.The LLC reported losses of $340,000 in 2010 and $180,000 in 2011.Joanne's share of the LLC's losses was $68,000 in 2010 and $36,000 in 2011.How much of these losses can Joanne deduct?

In the current year,Abby has AGI of $95,000 and a $40,000 loss from a real estate rental activity in which she is a 15% owner.If she is an active participant,she can deduct $25,000 of the loss.

During the year,Earl earned investment income of $13,500,incurred investment interest expense of $7,700,and other investment expenses of $9,000.Earl may carry over $3,200 of investment interest and deduct it in the future.