Question 1

In 2019, Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2019 and $100,000 in 2020, Kipp's share being $60,000 in 2019 and $30,000 in 2020.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?

Accepted Answer

A) $0 in 2019; $30,000 in 2020. 
B) $60,000 in 2019; $30,000 in 2020. 
C) $60,000 in 2019; $5,000 in 2020. 
D) $60,000 in 2019; $0 in 2020. 
E) None of these.

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

Jack owns a 10% interest in a partnership (not real estate) in which his at-risk amount is $42,000 at the beginning of the year.During the year, the partnership borrows $80,000 on a nonrecourse note and incurs a loss of $60,000 from operations.Jack's at-risk amount at the end of the year is $44,000.

Accepted Answer

A) True 
 B)False

Question 4

Carlos receives a gift of a passive activity from his father whose basis is $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.

Accepted Answer

A) True 
 B)False

Question 5

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.

Accepted Answer

A) True 
 B)False

Question 6

A qualified real estate professional is allowed to treat income or loss from any real estate venture as active except for income or loss from a rental activity.

Accepted Answer

A) True 
 B)False

Question 7

Ahmad owns four activities.He participated for 120 hours in Activity A, 150 hours in Activity B, 140 hours in Activity C, and 100 hours in Activity D.Which of the following statements is correct?

Accepted Answer

A) Activities A, B, C, and D are all significant participation activities. 
B) Activities A, B, and C are significant participation activities. 
C) Ahmad is a material participant with respect to Activities A, B, and C. 
D) Ahmad is a material participant with respect to Activities A, B, C, and D. 
E) None of these is correct.

Question 8

Matt has three passive activities and has at-risk amounts in excess of $100,000 for each.During the year, the activities produced the following income (losses). $\begin{array}{ll}
\text { Activity A } && (\$ 60,000) \
\text { Activity B } && (40,000) \
\text { Activity C } & &75,000 \
\text { Net passive activity loss } &\underline{\quad\quad}& (\$ 25,000)
\end{array}$ Matt's suspended losses are as follows:

Accepted Answer

A) $25,000 is allocated to C? $0 to A and B. 
B) $12,500 is allocated to A? $12,500 to B. 
C) $15,000 is allocated to A? $10,000 to B. 
D) $8,333 is allocated to A, B, and C. 
E) None of these.

Question 9

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 10

Gloria owns and works full-time at a shop that rents watercraft of various types to tourists who are vacationing at the beach.If she generates a loss from that activity, the loss is subject to the passive activity loss rules because it is rental property.

Accepted Answer

A) True 
 B)False

Question 11

Match the treatment for the following types of transactions.
-Treatment of a disposition of a passive activity at death.

Accepted Answer

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 that 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.

Question 12

Mary Jane participates for 100 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.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 15

Sherri owns an interest in a business that is not a passive activity and in which she has $20,000 at risk.If the business incurs a loss from operations during the year and her share of the loss is $32,000, this loss will be fully deductible.

Accepted Answer

A) True 
 B)False

Question 16

Dena owns interests in five businesses and has full-time employees in each business.She participates for 100 hours in Activity A, 120 hours in Activity B, 130 hours in Activity C, 140 hours in Activity D, and 125 hours in Activity E.

Accepted Answer

A) All five of Dena's activities are significant participation activities. 
B) Dena is a material participant with respect to all five activities. 
C) Dena is not a material participant in any of the activities. 
D) Dena is a material participant with respect to Activities B, C, D, and E. 
E) None of these is correct.

Question 17

Sandra acquired a passive activity three years ago.Until last year, the activity was profitable and her at-risk amount was $300,000.Last year, the activity produced a loss of $100,000, and in the current year, the loss is $50,000.Assuming Sandra has received no passive activity income in the current or prior years, her suspended passive activity loss from the activity is:

Accepted Answer

A) $90,000 from last year and $50,000 from the current year. 
B) $100,000 from last year and $50,000 from the current year. 
C) $0 from last year and $0 from the current year. 
D) $50,000 from the current year. 
E) None of these.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

In the current year, Don has a $55,000 loss from a business he owns.His at-risk amount at the end of the year, prior to considering the current-year loss, is $36,000.He will be allowed to deduct the $55,000 loss this year if he is a material participant in the business.

Accepted Answer

A) True 
 B)False

Question 20

Jennifer gave her interest in a passive activity (fair market value of $75,000 and basis of $60,000) to Harrison. Associated with the interest is a suspended passive activity loss of $8,000.Upon making the gift, the suspended passive activity loss is not deductible to Jennifer, but it will benefit Harrison.

Accepted Answer

A) True 
 B)False

Exam 11: Investor Losses

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.

Carlos receives a gift of a passive activity from his father whose basis is $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.

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.

A qualified real estate professional is allowed to treat income or loss from any real estate venture as active except for income or loss from a rental activity.

Ahmad owns four activities.He participated for 120 hours in Activity A, 150 hours in Activity B, 140 hours in Activity C, and 100 hours in Activity D.Which of the following statements is correct?

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

Gloria owns and works full-time at a shop that rents watercraft of various types to tourists who are vacationing at the beach.If she generates a loss from that activity, the loss is subject to the passive activity loss rules because it is rental property.

Match the treatment for the following types of transactions. -Treatment of a disposition of a passive activity at death.

Mary Jane participates for 100 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.

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.

Sherri owns an interest in a business that is not a passive activity and in which she has $20,000 at risk.If the business incurs a loss from operations during the year and her share of the loss is $32,000, this loss will be fully deductible.

Dena owns interests in five businesses and has full-time employees in each business.She participates for 100 hours in Activity A, 120 hours in Activity B, 130 hours in Activity C, 140 hours in Activity D, and 125 hours in Activity E.

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

In the current year, Don has a $55,000 loss from a business he owns.His at-risk amount at the end of the year, prior to considering the current-year loss, is $36,000.He will be allowed to deduct the $55,000 loss this year if he is a material participant in the business.