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Exam 11: Investor Losses

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Question 61

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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?

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In general,passive losses are deductible...

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Question 62

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Green Corporation earns active income of $50,000 and receives $40,000 in dividends during the year.In addition,Green incurs a loss of $70,000 from an investment in a passive activity acquired several years ago.Consider the following two statements: (1) Green's current deduction for passive losses is $50,000 if it is a closely held C corporation that is not a personal service corporation. (2) Green's current deduction for passive losses is $0 if it is a personal service corporation. Which of the following answers is correct?

A) Only statement 1.
B) Only statement 2.
C) Both statements 1 and 2.
D) Neither statement 1 or 2.
E) None of the above.

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

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Question 63

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Orange Corporation,a closely held (non-personal service) C corporation,earns active income of $300,000 in the current year.The corporation also receives $35,000 in dividends and incurs a loss of $50,000 from an investment in a passive activity.What is Orange's income for the year after considering the passive investment?

Investment income can include gross income from interest,dividends,annuities,and royalties not derived in the ordinary course of a trade or business;income from a passive activity;and income from a real estate activity in which the taxpayer actively participates.

Roger owns and actively participates in the operations of an apartment building which produces a $40,000 loss during the year.He has AGI of $150,000 from an active business.He may deduct $25,000 of the loss.

Purple Corporation,a personal service corporation,earns active income of $600,000.The corporation receives $60,000 in dividends and incurs a loss of $100,000 from an investment in a passive activity acquired three years ago.What is Purple's income after considering the passive investment?

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?

Match the treatment for the following types of transactions. a.The losses are allowed in the years in which gain is recognized.b.Suspended losses are allowed to offset the income from the activity, other passive activities, or active income.c.Suspended losses are allowed to the taxpayer to the extent they exceed the amount, if any, of the step-up in basis allowed.d.Any suspended losses may be used in the current year.e.The suspended losses are added to the basis of the property.f.No correct choice is given. -Treatment of suspended credits when passive activity is sold at a loss.

Lucy owns and actively participates in the operations of an apartment complex that produces a $50,000 loss during the year.Her modified AGI is $125,000 from an active business.Disregarding any at-risk amount limitation,she may deduct $25,000 of the loss,and the remaining $25,000 is a suspended passive loss.

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.

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.