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Exam 11: Investor Losses

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Question 21

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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.

A) True
B) False

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Question 22

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

A) True
B) False

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Question 23

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In the current year,Lucile,who has AGI of $70,000 before considering rental activities,is active in three separate real estate rental activities and is in the 28% 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.

Carl,a physician,earns $200,000 from his medical practice in the current year.He receives $45,000 in dividends and interest during the year as well as $5,000 of income from a passive activity.In addition,he incurs a loss of $50,000 from an investment in a passive activity.What is Carl's AGI for the current year after considering the passive investment?

Tom participates for 300 hours in Activity A and 250 hours in Activity B,both of which are nonrental businesses.Both activities are active.

Last year,Ted invested $100,000 for a 50% interest in a partnership in which he was a material participant.The partnership incurred a loss,and Ted's share was $150,000.Which of the following statements is incorrect?

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?

Vail owns interests in a beauty salon,a natural foods store,and a tanning salon.Several full-time employees work at each of the enterprises.As of the end of November of the current year,Vail has worked 180 hours in the beauty salon,220 hours at the natural foods store,and 80 hours at the tanning salon.These three ventures collectively will produce income.Vail also owns one other passive activity that is producing a loss (a limited partnership in which she has reported no participation).How should Vail plan her activities for the remainder of the year?

When determining whether an individual is a material participant,participation by an owner's spouse generally counts.

Bob realized a long-term capital gain of $8,000.In calculating his net investment income,Bob may elect to include the gain in investment income.

Which of the following is not a factor that should be considered in determining whether an activity is treated as an appropriate economic unit?

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:

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:

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.

Identify the types of income that are classified as investment income.Discuss the flexibility that a taxpayer has with respect to certain types of income that may potentially be considered investment income.

Sandra acquired a passive activity three years ago.Until last year,the activity was profitable and her at-risk amount was $300,000.Last year,the activity produced a loss of $100,000,and in the current year,the loss is $50,000.Assuming Sandra has received no passive activity income in the current or prior years,her suspended passive activity loss from the activity is:

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?

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.

A taxpayer is considered to be a material participant in a significant participation activity if he or she spends at least 400 hours in the activity.

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.