Question 1

When determining whether an individual is a material participant, participation by an owner's spouse generally counts.

Accepted Answer

A) True 
 B)False

Question 2

In 2017, Emily invests $120,000 in a limited partnership that is not a passive activity. During 2017, her share of the partnership loss is $90,000. In 2018, her share of the partnership loss is $50,000. How much can Emily deduct in 2017 and 2018?

Accepted Answer

The answer of In 2017, Emily invests $120,000 in a...

Question 3

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.

Question 4

Caroyl made a gift to Tim 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.

Accepted Answer

A) Tim's adjusted basis is $80,000, and Tim can deduct the $20,000 of suspended losses in the future. 
B) Tim's adjusted basis is $80,000. 
C) Tim's adjusted basis is $50,000, and the suspended losses are lost. 
D) Tim's adjusted basis is $50,000, and Tim can deduct the $20,000 of suspended losses in the future. 
E) None of the above.

Question 5

List the taxpayers that are subject to the passive activity loss rules and summarize the general impact of these rules on these taxpayers.

Accepted Answer

The answer of List the taxpayers that are subject to...

Question 6

Rita earns a salary of $150,000, and invests $40,000 for a 20% interest in a passive activity. Operations of the activity result in a loss of $250,000, of which Rita's share is $50,000. How is her loss characterized?

Accepted Answer

A) $40,000 is suspended under the passive activity loss rules and $10,000 is suspended under the at-risk rules. 
B) $40,000 is suspended under the at-risk rules and $10,000 is suspended under the passive activity loss rules. 
C) $50,000 is suspended under the passive activity loss rules. 
D) $50,000 is suspended under the at-risk rules. 
E) None of the above.

Question 7

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.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Which of the following factors should be considered in determining whether an activity is treated as an appropriate economic unit?

Accepted Answer

A) The similarities and differences in types of business. 
B) The extent of common control. 
C) The extent of common ownership. 
D) The geographic location. 
E) All 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 by gift.

Accepted Answer

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

Question 11

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

Exam 11: Investor Losses