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Exam 6: Losses and Loss Limitations

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Question 61

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A net operating loss occurring in 2018 can only be carried forward no carryback exists).

A) True
B) False

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Question 62

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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?

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

F) None of the above
G) A) and B)

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Question 63

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If a non-corporate taxpayer has an "excess business loss" for the year, it is not allowed.

In 2018, Emily invests $120,000 in a limited partnership that is not a passive activity.During 2018, her share of the partnership loss is $90,000.In 2019, her share of the partnership loss is $50,000.How much can Emily deduct in 2018 and 2019?

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?

Match the term with the correct response.More than one response may be correct. -Active participation.

Match the treatment for the following types of transactions. -Treatment of an installment sale of a passive activity.

The amount of loss for partial destruction of business property is the decline in fair market value of the business property.

Peggy is in the business of factoring accounts receivable.Last year, she purchased a $30,000 account receivable for $25,000.This year, the account was settled for $25,000.How much loss can Peggy deduct and in which year?

In the current year, Louise invests $50,000 for a 20% interest in a passive activity.Her share of the loss this year is $10,000.If this is her only passive activity, the $10,000 loss from the activity this year is suspended for use in a future year.

Jenny spends 32 hours a week, 50 weeks a year, operating a bicycle rental store that she owns at a resort community.She also owns a music store in another city that is operated by a full-time employee.Jenny spends 140 hours per year working at the music store.She elects not to group them together as a single activity under the "appropriate economic unit" standard.

The purpose of the "excess business loss" rules are to limit the amount of non-business income e.g., salaries, interest, dividends, etc.) that can be "sheltered" from tax as a result of business losses.

Lew owns five activities, and he elects not to group them together as a single activity under the "appropriate economic unit" standard.During the year, he participates for 120 hours in Activity A, 150 hours in Activity B, 140 hours in Activity C, 110 hours in Activity D, and 100 hours in Activity E.Which of the following statements is correct?

If investment property is stolen, the amount of the loss is the adjusted basis of the property at the time of the theft reduced by $100 and 10% of AGI.

A theft loss of investment property is an itemized deduction not subject to the 2%-of-AGI floor.

Gloria owns and works fulltime 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.

Jed is an electrician.Jed and his wife are accrual basis taxpayers and file a joint return.Jed wired a new house for Alison and billed her $15,000.Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant.Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement.Jed was able to collect the judgement but not the remainder of the bill from Alison.What amount of loss may Jed deduct in the current year?

What special passive activity loss treatment is available to real estate activities?

Tonya had the following items for last year: Determine Tonya's adjusted gross income for the current year.

Roger owns and actively participates in the operations of an apartment building which produces a $40,000 loss during the year.He has AGI of $150,000 from an active business.He may deduct $25,000 of the loss.