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Exam 6: Losses and Loss Limitations

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Question 51

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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.

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Question 52

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Anne sells a rental house for $100,000 adjusted basis of $55,000).During her ownership, $60,000 of losses have been suspended under the passive activity loss rules.Determine the tax treatment to Anne on the disposition of the property.

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Because Anne disposes of her entire inte...

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Question 53

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Roger, an individual, owns a proprietorship called Green Thing.For the year 2018, Roger has the following items: ∙ Business income-$200,000. ∙ Business expense-$150,000. ∙ Loss on a completely destroyed business machine.The machine had an adjusted basis of $25,000 and a fair market value of $20,000. ∙ Loss on a business truck.The truck had an adjusted basis of $8,000.The repairs to fix the truck cost $10,000. Determine Roger's adjusted gross income for 2018.

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

On September 3, 2017, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31, 2017, the stock was worth $85,000.On August 15, 2018, Able was notified that the stock was worthless.How should Able report this item on his 2018 tax return?

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.

Several years ago, John purchased 2,000 shares of Red Corporation § 1244 stock from Mark for $40,000.Last year, John sold one-half of his Red Corporation stock to Mike for $12,000.During the current year, John sold the remaining Red Corporation stock for $3,000.John has a $17,000 $3,000 - $20,000) ordinary loss for the current year.

In the current year, Kelly had a $35,000 loss from a real estate rental activity in which she is a 10% owner.If she is an active participant and if her modified AGI is $100,000, she can deduct $25,000 of the loss.

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.

Art's at-risk amount in a passive activity was $60,000 at the beginning of 2017.His loss from the activity in 2017 is $80,000, and he had no passive activity income during the year.Art had $20,000 of passive activity income from the activity in 2018.Under the passive activity loss rules, Art's suspended loss at the end of 2018 is:

A business theft loss is taken in the year of the theft.

Leigh, who owns a 50% interest in a sporting goods store, was a material participant in the activity for the last fifteen years.She retired from the sporting goods store at the end of last year and will not participate in the activity in the future.However, she continues to be a material participant in an office supply store in which she is a 50% partner.The operations of the sporting goods store resulted in a loss for the current year and Leigh's share of the loss is $40,000.Leigh's share of the income from the office supply store is $75,000.She does not own interests in any other activities.

Rick, a computer consultant, owns a separate business not real estate) in which he participates.He has one employee who works part-time in the business.

Several years ago, Joy acquired a passive activity.Until 2016, the activity was profitable.Joy's at-risk amount at the beginning of 2016 was $250,000.The activity produced losses of $100,000 in 2016, $80,000 in 2017, and $90,000 in 2018.During the same period, no passive activity income was recognized.How much is suspended under the at-risk rules and the passive activity loss rules at the beginning of 2019?

Norm's car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2018.The car's adjusted basis at the time of the accident was $13,000.Its fair market value was $10,000.The car was covered by a $2,000 deductible insurance policy.Norm did not file a claim against the insurance policy because of a fear that reporting the accident would result in a substantial increase in his insurance rates.His adjusted gross income was $14,000 before considering the loss) .What is Norm's deductible loss?

Beginning in 2018, a personal casualty loss deduction is only allowed for losses occurring in a Federally-declared disaster area.

Pablo, who is single, has $95,000 of salary, $10,000 of income from a limited partnership, and a $27,000 passive activity loss from a real estate rental activity in which he actively participates.His modified adjusted gross income is $95,000.Of the $27,000 loss, how much is deductible?

James is in the business of debt collection.He purchased a $20,000 account receivable from Green Corporation for $15,000.During the year, James collected $17,000 in final settlement of the account.James can take a $2,000 bad debt deduction in the current year.

A taxpayer can carry back any NOL incurred 2 years and then forward up to 20 years.

If personal casualty gains exceed personal casualty losses after deducting the $100 floor), there is no itemized deduction.