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Exam 11: Investor Losses

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Question 61

Multiple Choice

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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?

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 these characterizes it.

F) B) and C)
G) All of the above

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Question 62

Multiple Choice

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In the current year, Crow Corporation, a closely held C corporation that is not a personal service corporation, has $100,000 of passive activity losses, $80,000 of active business income, and $20,000 of portfolio income. How much of the passive activity loss may Crow deduct in the current year?

A) $0.
B) $20,000.
C) $80,000.
D) $100,000.
E) None of these.

F) B) and C)
G) A) and E)

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Question 63

Multiple Choice

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Faye dies owning an interest in a passive activity property (adjusted basis of $150,000, suspended losses of $52,000, and a fair market value of $180,000) . What, if any, can be deducted on her final income tax return?

Describe the general rules that limit the deduction of investment interest expense.

During the current year, David earned investment income of $20,000. In addition, he incurred investment interest expense of $12,000 and other investment expenses of $9,000. David can deduct $12,000 of investment interest expense for this year.

Dick participates in an activity for 90 hours during the year. He has no employees and there are no other participants. Dick is a material participant.

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.

During the current year, Ryan performs personal services as follows: 700 hours in his management consulting practice, 650 hours in a real estate development business, and 550 hours in an apartment leasing operation. He expects that losses will be realized from the two real estate ventures and his consulting practice will show a profit. Ryan files a joint return with his spouse whose salary is $125,000. Discuss the character and treatment of the income and losses generated by these activities.

Match the term with the correct response. More than one response may be correct. -At-risk amount.

In the current year, Lucile, who is single and has AGI of $90,000 before considering rental activities, is active in three separate real estate rental activities and is in the 22% tax bracket. She had $15,000 of losses from Activity A, $25,000 of losses from Activity B, and income of $20,000 from Activity C. She also had $3,100 of tax credits from Activity A. Calculate her deductions and credits currently allowed and the suspended losses and credits.

Nell sells a passive activity with an adjusted basis of $45,000 for $105,000. Suspended losses attributable to this property total $45,000. The total gain and the taxable gain are:

Kim dies owning a passive activity with a basis of $75,000, a fair market value of $140,000, and suspended losses of $80,000. All of the $80,000 passive activity loss can be deducted on Kim's final income tax return.

Jed spends 32 hours a week, 50 weeks a year, operating a bicycle rental store that he owns at a resort community. He also owns a music store in another city that is operated by a full-time employee. He elects not to group them together as a single activity under the "appropriate economic unit" standard. Jed spends 40 hours per year working at the music store.

Kelly, who earns a yearly salary of $120,000, sold an activity with a suspended passive activity loss of $44,000. The activity was sold at a loss and Kelly has no other passive activities. The suspended loss is not deductible.

In 2019, Emily invests $120,000 in a limited partnership that is not a passive activity. During 2019, her share of the partnership loss is $90,000. In 2020, her share of the partnership loss is $50,000. How much can Emily deduct in 2019 and 2020?

Kathy, who is a real estate professional, owns an apartment building and devotes 550 hours to managing the activity. All losses from the rental activity will be considered nonpassive and deductible against active income.

Jackson Company incurs a $50,000 loss on a passive activity during the year. The company has active income of $34,000 and portfolio income of $24,000. If Jackson is a personal service corporation, it may deduct $34,000 of the passive activity loss.

Jon owns an apartment building in which he is a material participant and also owns a computer consulting business. Of the 2,000 hours he spends on these activities during the year, 55% of the time is spent operating the apartment building and 45% of the time is spent in the computer consulting business.

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?

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