FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Losses and Loss Limitations

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 1

True/False

Review LaterAdd Note

Review Later

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.

A) True
B) False

Correct Answer

verified

False

Question 2

Essay

Review LaterAdd Note

Review Later

Discuss the treatment given to suspended passive activity losses and credits.What happens to an activity's unused losses and credits when the activity is sold?

Correct Answer

verified

In general, passive activity losses are ...

View Answer

Show Answer

Question 3

Essay

Review LaterAdd Note

Identify how the passive activity loss rules broadly classify various types of income and losses.Provide examples of each category.

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.

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.

Identify the factors that should be considered in determining whether a transaction is a business bad debt or a nonbusiness bad debt.

During the current year, Ethan performs personal services as follows: 800 hours in his information technology consulting practice, 625 hours in a real estate development business, and 510 hours in a condominium leasing operation.He expects that losses will be realized from the two real estate ventures while his consulting practice will show a profit.Ethan files a joint return with his wife whose salary is $125,000.The income and losses from the following ventures is considered active and not subject to the passive activity loss limitations:

Norm's car, which he uses 100% for personal purposes, was completely destroyed in an accident in 2017.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?

Jose, single, had the following items for 2017: ? $\begin{array} { l r } \text { Salary } & \$ 44,000 \\\text { § 1244 loss on stock acquired 3 years ago } & ( 70,000 ) \\\text { § 1244 gain on stock acquired } 10 \text { months ago } & 26,000 \\\text { Worthless security purchased in June of last year } & ( 4,000 ) \\\text { Nonbusiness bad debt } & ( 7,000 ) \\\text { Interest income } & 8,000\\\text { Compute Jose's adjusted gross income for 2017}\end{array}$

If a taxpayer has a net operating loss (NOL) in 2017 of $20,000, of which $8,000 is attributable to a theft of rental use property, the taxpayer may:

In determining whether a debt is a business or nonbusiness bad debt, the debtor's use of the borrowed funds is important.

When a taxpayer disposes of a passive activity by gift, what happens to any unused passive activity losses?

Lindsey, an attorney, earns $125,000 from her law practice in the current year.In addition, she receives $50,000 in dividends and interest during the year.Further, she incurs a loss of $40,000 from an investment in a passive activity.What is Lindsey's AGI for the year after considering the passive investment?

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.

If a business debt previously deducted as partially worthless becomes totally worthless this year, only the amount not previously deducted can be deducted this year.

Maria, who owns a 50% interest in a restaurant, has been a material participant in the restaurant activity for the last 20 years.She retired from the restaurant at the end of last year and will not participate in the restaurant activity in the future.However, she continues to be a material participant in a retail store in which she is a 50% partner.The restaurant operations produce a loss for the current year, and Maria's share of the loss is $80,000.Her share of the income from the retail store is $150,000.She does not own interests in any other activities.

How is qualified production activities income (QPAI) calculated?

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?

Ken has a $40,000 loss from an investment in a partnership in which he does not materially participate.He paid $30,000 for his interest.How much of the loss is disallowed by the at-risk rules? How much is disallowed by the passive activity loss rules?

Why was the domestic production activities deduction (DPAD) enacted by Congress?