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Exam 11: Investor Losses

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Question 51

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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.

A) True
B) False

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Question 52

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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.

A) True
B) False

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Question 53

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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.

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

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?

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?

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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 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.

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:

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: