Exam 11: Investor Losses

During the current year,Ryan performs personal services as follows: 700 hours in his management consulting practice,650 hours in a real estate development business,and 550 hours in an apartment leasing operation.He expects that losses will be realized from the two real estate ventures while his consulting practice will show a profit.Ryan files a joint return with his wife whose salary is $125,000.Discuss the character of the income and losses generated by these activities.

Irving invests in vacant land for the purpose of realizing a profit on its appreciation.He leases the land during the period he holds it.The unadjusted basis of the property is $25,000 and its fair market value is $35,000.The lease payments are $400 per year.

Judy owns a 20% interest in a partnership (not real estate)in which her at-risk amount was $35,000 at the beginning of the year.The partnership borrowed $50,000 on a recourse note and made a $40,000 profit during the year.Her at-risk amount at the end of the year is $53,000.

Coyote Corporation has active income of $45,000 and a passive loss of $23,000 in the current year.Coyote cannot deduct the $23,000 loss if it is a personal service corporation.

Consider the following three statements: In which of the three cases above could the rental activity automatically be considered a passive activity?

Tara owns a shoe store and a bookstore.Both businesses are operated in a mall.She also owns a restaurant across the street and a jewelry store several blocks away.

Gray Company,a closely held C corporation,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 Gray is a not a personal service corporation,it may deduct $34,000 of the passive loss.

A taxpayer is considered to be a material participant if he or she spends more than 500 hours in the activity.

Vail owns interests in a beauty salon,a natural foods store,and a tanning salon.Several full-time employees work at each of the enterprises.As of the end of November of the current year,Vail has worked 180 hours in the beauty salon,220 hours at the natural foods store,and 80 hours at the tanning salon.These three ventures collectively will produce income.Vail also owns one other passive activity that is producing a loss (a limited partnership in which she has reported no participation).How should Vail plan her activities for the remainder of the year?

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?

Tony is married and files a joint tax return.He has investment interest expense of $190,000 on a loan made to him to purchase a parcel of unimproved land.His income from investments (interest and annuities)totaled $36,000.After reducing his miscellaneous deductions by the applicable 2% floor,the deductible portion amounted to $5,600.In addition to $2,800 of investment expenses included in miscellaneous deductions,Tony paid $7,200 of real estate taxes on the unimproved land.Tony also has a $9,000 net capital gain from the sale of another parcel of unimproved land.Calculate Tony's maximum investment interest deduction for the year.

In 2010,Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2010 and $100,000 in 2011,Kipp's share being $60,000 in 2010 and $30,000 in 2011.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?

During the year,Bear Company incurs a $25,000 loss on a passive activity,has active income of $17,000,and portfolio income of $12,000.If Bear is a personal service corporation,it may deduct all of the $25,000 passive loss.

Kim made a gift to Sam 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.