Question 1

Which of the following decreases a taxpayer's at-risk amount?

Accepted Answer

A) Cash and the adjusted basis of property contributed to the activity. 
B) Amounts borrowed for use in the activity for which the taxpayer is personally liable or has pledged as security property not used in the activity. 
C) Taxpayer's share of amounts borrowed for use in the activity that is qualified nonrecourse financing. 
D) Taxpayer's share of the activity's income. 
E) None of the above. 
A) Cash and the adjusted basis of property contributed to the activity. 
B) Amounts borrowed for use in the activity for which the taxpayer is personally liable or has pledged as security property not used in the activity. 
C) Taxpayer's share of amounts borrowed for use in the activity that is qualified nonrecourse financing. 
D) Taxpayer's share of the activity's income. 
E) None of the above.

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

Josie,an unmarried taxpayer,has $155,000 in salary,$10,000 in income from a limited partnership,and a $26,000 passive loss from a real estate rental activity in which she actively participates.If her modified adjusted gross income is $155,000,how much of the $26,000 loss is deductible?

Accepted Answer

A) $0. 
B) $10,000. 
C) $25,000. 
D) $26,000. 
E) None of the above. 
A) $0. 
B) $10,000. 
C) $25,000. 
D) $26,000. 
E) None of the above.

Question 4

Anita owns Activity A which produces active income and Activity B which produces losses.From a tax planning perspective,Anita will be better off if Activity B is a passive activity.

Accepted Answer

A) True 
 B)False

Question 5

Services performed by an employee are treated as being related to a real estate trade or business if the employee performing the services has more than a 5% ownership interest in the employer.

Accepted Answer

A) True 
 B)False

Question 6

Bob realized a long-term capital gain of $8,000.In calculating his net investment income,Bob may elect to include the gain in investment income.

Accepted Answer

A) True 
 B)False

Question 7

Leigh,who owns a 50% interest in a sporting goods store,was a material participant in the activity for the last fifteen years.She retired from the sporting goods store at the end of last year and will not participate in the activity in the future.However,she continues to be a material participant in an office supply store in which she is a 50% partner.The operations of the sporting goods store resulted in a loss for the current year and Leigh's share of the loss is $40,000.Leigh's share of the income from the office supply store is $75,000.She does not own interests in any other activities.

Accepted Answer

A) Leigh cannot deduct the $40,000 loss from the sporting goods store because she is not a material participant. 
B) Leigh can offset the $40,000 loss from the sporting goods store against the $75,000 of income from the office supply store. 
C) Leigh will not be able to deduct any losses from the sporting goods store until future years. 
D) Leigh will not be able to deduct any losses from the sporting goods store until she has been retired for at least four years. 
E) None of the above. 
A) Leigh cannot deduct the $40,000 loss from the sporting goods store because she is not a material participant. 
B) Leigh can offset the $40,000 loss from the sporting goods store against the $75,000 of income from the office supply store. 
C) Leigh will not be able to deduct any losses from the sporting goods store until future years. 
D) Leigh will not be able to deduct any losses from the sporting goods store until she has been retired for at least four years. 
E) None of the above.

Question 8

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.An $80,000 passive loss can be deducted on Kim's final income tax return.

Accepted Answer

A) True 
 B)False

Question 9

Joyce owns an activity (not real estate)in which she participates for 100 hours a year;her husband participates for 450 hours.Joyce qualifies as a material participant.

Accepted Answer

A) True 
 B)False

Question 10

In the current year,Crow Corporation,a closely held C corporation that is not a personal service corporation,has $100,000 of passive losses,$80,000 of active business income,and $20,000 of portfolio income.How much of the passive loss may Crow deduct in the current year?

Accepted Answer

A) $0. 
B) $20,000. 
C) $80,000. 
D) $100,000. 
E) None of the above 
A) $0. 
B) $20,000. 
C) $80,000. 
D) $100,000. 
E) None of the above

Question 11

Nathan owns Activity A,which produces income,and Activity B,which produces passive losses.From a tax planning perspective,Nathan will be better off if Activity A is passive.

Accepted Answer

A) True 
 B)False

Question 12

Nell sells a passive activity with an adjusted basis of $45,000 for $105,000.Suspended losses attributable to this property total $45,000.The total gain and the taxable gain are:

Accepted Answer

A) $60,000 total gain;$105,000 taxable gain. 
B) $10,000 total gain;$15,000 taxable gain. 
C) $60,000 total gain;$0 taxable gain. 
D) $60,000 total gain;$15,000 taxable gain. 
E) None of the above. 
A) $60,000 total gain;$105,000 taxable gain. 
B) $10,000 total gain;$15,000 taxable gain. 
C) $60,000 total gain;$0 taxable gain. 
D) $60,000 total gain;$15,000 taxable gain. 
E) None of the above.

Question 13

White Corporation,a closely held personal service corporation,has $150,000 of passive losses,$120,000 of active business income,and $30,000 of portfolio income.How much of the passive loss may White Corporation deduct?

Accepted Answer

A) $0. 
B) $30,000. 
C) $120,000. 
D) $150,000. 
E) None of the above. 
A) $0. 
B) $30,000. 
C) $120,000. 
D) $150,000. 
E) None of the above.

Question 14

Ramon incurs $55,400 of interest expense this year related to his investments.His investment income includes $23,000 of interest and a $25,000 net capital gain on the sale of securities.Ramon has asked you to compute the amount of his deduction for investment interest,taking into consideration any options he might have.The maximum amount of Ramon's investment interest expense deduction for the year is:

Accepted Answer

A) $13,000. 
B) $23,000. 
C) $48,000. 
D) $55,400. 
E) None of the above. 
A) $13,000. 
B) $23,000. 
C) $48,000. 
D) $55,400. 
E) None of the above.

Question 15

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

Accepted Answer

A) If Nick participates for 500 hours and the employee participates for 520 hours during the year,Nick qualifies as a material participant. 
B) If Nick participates for 600 hours and the employee participates for 1,000 hours during the year,Nick qualifies as a material participant. 
C) If Nick participates for 120 hours and the employee participates for 120 hours during the year,Nick does not qualify as a material participant. 
D) If Nick participates for 95 hours and the employee participates for 5 hours during the year,Nick probably does not qualify as a material participant. 
E) None of the above. 
A) If Nick participates for 500 hours and the employee participates for 520 hours during the year,Nick qualifies as a material participant. 
B) If Nick participates for 600 hours and the employee participates for 1,000 hours during the year,Nick qualifies as a material participant. 
C) If Nick participates for 120 hours and the employee participates for 120 hours during the year,Nick does not qualify as a material participant. 
D) If Nick participates for 95 hours and the employee participates for 5 hours during the year,Nick probably does not qualify as a material participant. 
E) None of the above.

Question 16

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

Accepted Answer

The special passive loss rules available

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

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.

Accepted Answer

A) Neither store is a passive activity. 
B) Both stores are passive activities. 
C) Only the DVD rental store is a passive activity. 
D) Only the music store is a passive activity. 
E) None of the above. 
A) Neither store is a passive activity. 
B) Both stores are passive activities. 
C) Only the DVD rental store is a passive activity. 
D) Only the music store is a passive activity. 
E) None of the above.

Question 19

During the year,Eric earned investment income of $20,000,incurred investment interest expense of $12,500,and incurred other investment expenses of $9,000.Eric may deduct $12,500 of investment interest this year.

Accepted Answer

A) True 
 B)False

Question 20

Ned,a college professor,owns a separate business (not real estate)in which he participates in the current year.He has one employee who works part-time in the business.

Accepted Answer

A) If Ned participates for 120 hours and the employee participates for 120 hours during the year,Ned does not qualify as a material participant. 
B) If Ned participates for 95 hours and the employee participates for 5 hours during the year,Ned probably does not qualify as material participant. 
C) If Ned participates for 500 hours and the employee participates for 520 hours during the year,Ned qualifies as material participant. 
D) If Ned participates for 600 hours and the employee participates for 2,000 hours during the year,Ned qualifies as a material participant. 
E) None of the above. 
A) If Ned participates for 120 hours and the employee participates for 120 hours during the year,Ned does not qualify as a material participant. 
B) If Ned participates for 95 hours and the employee participates for 5 hours during the year,Ned probably does not qualify as material participant. 
C) If Ned participates for 500 hours and the employee participates for 520 hours during the year,Ned qualifies as material participant. 
D) If Ned participates for 600 hours and the employee participates for 2,000 hours during the year,Ned qualifies as a material participant. 
E) None of the above.

Exam 11: Investor Losses

Which of the following decreases a taxpayer's at-risk amount?

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.

Josie,an unmarried taxpayer,has $155,000 in salary,$10,000 in income from a limited partnership,and a $26,000 passive loss from a real estate rental activity in which she actively participates.If her modified adjusted gross income is $155,000,how much of the $26,000 loss is deductible?

Anita owns Activity A which produces active income and Activity B which produces losses.From a tax planning perspective,Anita will be better off if Activity B is a passive activity.

Services performed by an employee are treated as being related to a real estate trade or business if the employee performing the services has more than a 5% ownership interest in the employer.

Bob realized a long-term capital gain of $8,000.In calculating his net investment income,Bob may elect to include the gain in investment income.

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.An $80,000 passive loss can be deducted on Kim's final income tax return.

Joyce owns an activity (not real estate)in which she participates for 100 hours a year;her husband participates for 450 hours.Joyce qualifies as a material participant.

In the current year,Crow Corporation,a closely held C corporation that is not a personal service corporation,has $100,000 of passive losses,$80,000 of active business income,and $20,000 of portfolio income.How much of the passive loss may Crow deduct in the current year?

Nathan owns Activity A,which produces income,and Activity B,which produces passive losses.From a tax planning perspective,Nathan will be better off if Activity A is passive.

Nell sells a passive activity with an adjusted basis of $45,000 for $105,000.Suspended losses attributable to this property total $45,000.The total gain and the taxable gain are:

White Corporation,a closely held personal service corporation,has $150,000 of passive losses,$120,000 of active business income,and $30,000 of portfolio income.How much of the passive loss may White Corporation deduct?

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

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

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

During the year,Eric earned investment income of $20,000,incurred investment interest expense of $12,500,and incurred other investment expenses of $9,000.Eric may deduct $12,500 of investment interest this year.

Ned,a college professor,owns a separate business (not real estate)in which he participates in the current year.He has one employee who works part-time in the business.

An Introduction to Taxation and Understanding the Federal Tax Law

Working With the Tax Law

Computing the Tax

Gross Income: Concepts and Inclusions

Gross Income: Exclusions

Deductions and Losses: in General

Deductions and Losses: Certain Business Expenses and Losses

Depreciation,cost Recovery,amortization,and Depletion

Deductions: Employee and Self-Employed-Related Expenses

Deductions and Losses: Certain Itemized Deductions

Tax Credits and Payments

Part 1--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

Part 2--Property Transactions: Determination of Gain or Loss,basis Considerations,and Nontaxable Exchanges

Property Transactions: Capital Gains and Losses,1231,and Recapure Provisions

Alternative Minimum Tax

Accounting Periods and Methods

Corporations: Introduction and Operating Rules

Corporations: Organization and Capital Structure

Corporations: Distributions Not in Complete Liquidation

Distributions in Complete Liquidation and an Overview of Reorganizations

Partnerships

S Corporations

Exempt Entities

Multistate Corporate Taxation

Taxation of International Transactions

Tax Practice and Ethics

The Federal Gift and Estate Taxes

Income Taxation of Trusts and Estates

Filters