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Exam 6: Losses and Loss Limitations

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Question 31

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Art's at-risk amount in a passive activity was $60,000 at the beginning of 2012.His loss from the activity in 2012 is $80,000,and he had no passive activity income during the year.Art had $20,000 of passive income from the activity in 2013.Under the passive loss rules,Art's suspended loss at the end of 2013 is:

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

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

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Question 32

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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.

A) True
B) False

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Question 33

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If a taxpayer has an NOL in 2013 of $20,000,of which $8,000 is attributable to a theft of rental use property,the taxpayer may:

A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.

An individual may deduct a loss on rental property even if it does not meet the definition of a casualty loss.

Individuals with modified AGI of $100,000 can deduct against active or portfolio income losses of up to $25,000 from real estate rental activities in which they actively participate.

On September 3,2012,Able,a single individual,purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31,2012,the stock was worth $85,000.On August 15,2013,Able was notified that the stock was worthless.How should Able report this item on his 2013 tax return?

Last year,Wanda gave her daughter a passive activity (adjusted basis of $80,000; fair market value of $160,000)with suspended losses of $20,000.In the current year,her daughter realizes income of $10,000 from the activity.What are the tax effects to Wanda and her daughter?

A loss is not allowed for a security that declines in value.

Josh has investments in two passive activities.Activity A (acquired three years ago) produces income of $30,000 this year,while Activity B (acquired two years ago) produces a loss of $50,000.What is the amount of Josh's suspended loss for the year?

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.

In 2013,Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2013 and $100,000 in 2014,Kipp's share being $60,000 in 2013 and $30,000 in 2014.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?

Discuss the tax treatment of non-reimbursed losses of an employee in connection with a trade or business.

A loss from a worthless security is always treated as a short-term capital loss.

In 2013,Joanne invested $90,000 for a 20% interest in a limited liability company (LLC) in which she is a material participant.The LLC reported losses of $340,000 in 2013 and $180,000 in 2014.Joanne's share of the LLC's losses was $68,000 in 2013 and $36,000 in 2014.How much of these losses can Joanne deduct?

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.

Which of the following events would produce a deductible loss?

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 loss can be deducted on Kim's final income tax return.

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.

Judy owns a 20% interest in a partnership (not real estate)in which her at-risk amount was $35,000 at the beginning of the year.The partnership borrowed $50,000 on a recourse note and made a $40,000 profit during the year.Her at-risk amount at the end of the year is $43,000.