Exam 11: Investor Losses

Faye dies owning an interest in a passive activity property (adjusted basis of $150,000, suspended losses of $52,000, and a fair market value of $180,000). What, if any, can be deducted on her final income tax return?

Tom participates for 100 hours in Activity A and 450 hours in Activity B, both of which are nonrental businesses. Both activities are active.

Carlos receives a gift of a passive activity from his father whose basis was $60,000. Suspended losses related to the activity are $18,000. Carlos will be allowed to offset the $18,000 suspended losses against future passive activity income.

In 2018, 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 2018 and $180,000 in 2019. Joanne's share of the LLC's losses was $68,000 in 2018 and $36,000 in 2019. How much of these losses can Joanne deduct?

Describe the general rules that limit the deduction of investment interest expense.

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

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 activity loss can be deducted on Kim's final income tax return.

Raul is married and files a joint tax return. His current investment interest expense of $95,000 is related to a loan used to purchase a parcel of unimproved land being held as an investment. Income from investments [dividends (not qualified) and interest] total $18,000. Raul paid and deducted $5,000 of real estate taxes on the unimproved land. He also has a $4,500 net long-term capital gain from the sale of another parcel of unimproved land. Raul's maximum investment interest deduction for the year is:

Art's at-risk amount in a passive activity was $60,000 at the beginning of 2017. His loss from the activity in 2017 is $80,000, and he had no passive activity income during the year. Art had $20,000 of passive activity income from the activity in 2018. Under the passive activity loss rules, Art's suspended loss at the end of 2018 is:

George, an ophthalmologist, owns a separate business (not real estate) in which he participates. He has one employee who works part-time in the business. Which of the following statements is correct?

All of a taxpayer's tax credits relating to a passive activity can be utilized when the activity is sold at a loss.

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.

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

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

Oriole Corporation has active income of $45,000 and a passive activity loss of $23,000 in the current year. Under an exception, Oriole can deduct the $23,000 loss if it is a personal service corporation.

Match the treatment for the following types of transactions. a. The losses are allowed in the years in which gain is recognized. b. Suspended losses are allowed to offset the income from the activity, other passive activities, or active income. c. Suspended losses are allowed to the taxpayer to the extent they exceed the amount, if any, of the step-up in basis allowed. d. Any suspended losses may be used in the current year. e. The suspended losses are added to the basis of the property. f. No correct choice is given. -Treatment of a disposition of a passive activity by gift.

In 2018, Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity. The partnership reported losses of $200,000 in 2018 and $100,000 in 2019, Kipp's share being $60,000 in 2018 and $30,000 in 2019. 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?

In the current year, Kelly had a $35,000 loss from a real estate rental activity in which she is a 10% owner. If she is an active participant and if her modified AGI is $100,000, she can deduct $25,000 of the loss.

Linda owns investments that produce portfolio income and Activity A that produces losses. From a tax perspective, Linda will be better off if Activity A is not passive.

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.