Question 1

Green Corporation earns active income of $50,000 and receives $40,000 in dividends during the year.In addition,Green incurs a loss of $70,000 from an investment in a passive activity acquired several years ago.Consider the following two statements:
(1)
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Green's current deduction for passive activity losses is $50,000 if it is a closely held C corporation that is not a personal service corporation.
(2)
Green's current deduction for passive activity losses is $0 if it is a personal service corporation.
Which of the following answers is correct?

Accepted Answer

A) Only statement 1. 
B) Only statement 2. 
C) Both statements 1 and 2. 
D) Neither statement 1 or 2. 
E) None of the above.

Question 2

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 suspended credits when passive activity is sold at a loss.

Accepted Answer

The answer of Match the treatment for the following types...

Question 3

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?

Accepted Answer

A) Wes has a loss of $25,000 suspended under the passive activity loss rules. 
B) Wes has an at-risk amount in the activity of $0. 
C) Wes has a loss of $10,000 suspended under the at-risk rules. 
D) Wes has a loss of $35,000 suspended under the passive activity loss rules. 
E) None of the above is incorrect.

Question 4

Josie,an unmarried taxpayer,has $155,000 in salary,$10,000 in income from a limited partnership,and a $26,000 passive activity 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

Question 5

Match the term with the correct response. More than one response may be correct.
 
a.Taxpayer devotes time aggregating more than 500 hours in all significant participation activities during the year.
b.Participates in making management decisions in a significant and bonafide sense.
c.One in which the individual's participation equals more than 100 hours during the year.
d.Taxpayer devotes time in the activity which constitutes substantially all of the participation in the activity of all individuals.
e.Both options a. and d. are correct.
f.No correct choice is given.
-Active participation.

Accepted Answer

The answer of Match the term with the correct response....

Question 6

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.

Question 7

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.

Accepted Answer

A) The heir's adjusted basis is $130,000,and Kate's final deduction is $15,000. 
B) The heir's adjusted basis is $130,000,and Kate's final deduction is $45,000. 
C) The heir's adjusted basis is $100,000,and Kate's final deduction is $45,000. 
D) The heir's adjusted basis is $175,000,and Kate has no final deduction. 
E) None of the above.

Question 8

Lindsey,an attorney,earns $125,000 from her law practice in the current year.In addition,she receives $50,000 in dividends and interest during the year.Further,she incurs a loss of $40,000 from an investment in a passive activity.What is Lindsey's AGI for the year after considering the passive investment?

Accepted Answer

The answer of Lindsey,an attorney,earns $125,000 from her law practice...

Question 9

In 2016,Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2016 and $100,000 in 2017,Kipp's share being $60,000 in 2016 and $30,000 in 2017.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 2016;$30,000 in 2017. 
B) $60,000 in 2016;$30,000 in 2017. 
C) $60,000 in 2016;$5,000 in 2017. 
D) $60,000 in 2016;$0 in 2017. 
E) None of the above.

Question 10

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 at death.

Accepted Answer

The answer of Match the treatment for the following types...

Question 11

Bruce owns a small apartment building that produces a $25,000 loss during the year.His AGI before considering the rental loss is $85,000.Bruce must be a material participant with respect to the rental activity in order to deduct the $25,000 loss under the real estate rental exception.

Accepted Answer

A) True 
 B)False

Question 12

Hugh has four passive activities which generate the following income and losses in the current year.
Activity
Gain (Loss)
A
($60,000)
B
(20,000)
C
(10,000)
D
10,000
Total
($80,000)
How much of the $80,000 net passive activity loss can Hugh deduct this year? Calculate the suspended losses (by activity).

Accepted Answer

The answer of Hugh has four passive activities which generate...

Question 13

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

Accepted Answer

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

Question 14

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.

Accepted Answer

A) All four businesses can be treated as a single activity if Tara elects to do so. 
B) Only the shoe store and bookstore can be treated as a single activity,the restaurant must be treated as a separate activity,and the jewelry store must be treated as a separate activity. 
C) The shoe store,bookstore,and restaurant can be treated as a single activity,and the jewelry store must be treated as a separate activity. 
D) All four businesses must be treated as separate activities. 
E) None of the above.

Question 15

In 2016,Emily invests $120,000 in a limited partnership that is not a passive activity.During 2016,her share of the partnership loss is $90,000.In 2017,her share of the partnership loss is $50,000.How much can Emily deduct in 2016 and 2017?

Accepted Answer

The answer of In 2016,Emily invests $120,000 in a limited...

Question 16

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?

Accepted Answer

The answer of Purple Corporation,a personal service corporation,earns active income...

Question 17

Pat sells a passive activity for $100,000 that has an adjusted basis of $55,000.During the years of her ownership,$60,000 of losses have been incurred that were suspended under the passive activity loss rules.In addition,the passive activity generated tax credits of $10,000 that were not utilized and suspended.Determine the tax treatment to Pat on the disposition of the property.

Accepted Answer

The answer of Pat sells a passive activity for $100,000...

Question 18

Art's at-risk amount in a passive activity was $60,000 at the beginning of 2015.His loss from the activity in 2015 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 2016.Under the passive activity loss rules,Art's suspended loss at the end of 2016 is:

Accepted Answer

A) $15,000. 
B) $20,000. 
C) $45,000. 
D) $60,000. 
E) None of the above.

Question 19

Tonya owns an interest in an activity (not real estate)that converted recourse financing to nonrecourse financing.Recapture of previously allowed losses is required if Tonya's at-risk amount is reduced below zero as a result of the debt restructuring.

Accepted Answer

A) True 
 B)False

Question 20

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 the above.

Exam 11: Investor Losses

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?

Josie,an unmarried taxpayer,has $155,000 in salary,$10,000 in income from a limited partnership,and a $26,000 passive activity 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?

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.

Bruce owns a small apartment building that produces a $25,000 loss during the year.His AGI before considering the rental loss is $85,000.Bruce must be a material participant with respect to the rental activity in order to deduct the $25,000 loss under the real estate rental exception.

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

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.

In 2016,Emily invests $120,000 in a limited partnership that is not a passive activity.During 2016,her share of the partnership loss is $90,000.In 2017,her share of the partnership loss is $50,000.How much can Emily deduct in 2016 and 2017?

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?

Tonya owns an interest in an activity (not real estate)that converted recourse financing to nonrecourse financing.Recapture of previously allowed losses is required if Tonya's at-risk amount is reduced below zero as a result of the debt restructuring.

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?