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Exam 11: Investor Losses

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Question 21

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Sarah purchased for $100,000 a 10% interest in a business venture that is not subject to the passive activity rules.During the first year,her share of the entity's loss was $120,000.At the beginning of the second year,the entity obtained $800,000 of recourse financing.During the second year,Sarah withdrew cash of $20,000,and her share of the entity's loss was $25,000.Calculate the amount of loss that Sarah may claim in each of the two years and determine her at-risk amount at the end of each year.

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Initial at-risk amount $100,000
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Question 22

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

A) The interdependencies between the activities.
B) The extent of common control.
C) The extent of common ownership.
D) The geographical location.
E) All of these are relevant factors.

F) None of the above
G) A) and B)

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Question 23

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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.

Jon owns an apartment building in which he is a material participant and a computer consulting business.Of the 2,000 hours he spends on these activities during the year,55% of the time is spent operating the apartment building and 45% of the time is spent in the computer consulting business.

Josh has investments in two passive activities.Activity A,acquired three years ago,produces income in the current year of $60,000.Activity B,acquired last year,produces a loss of $100,000 in the current year.At the beginning of this year,Josh's at­risk amounts in Activities A and B are $10,000 and $100,000,respectively.What is the amount of Josh's suspended passive loss with respect to these activities at the end of the current year?

What special passive loss treatment is available to real estate activities?

Match the treatment for the following types of transactions. -Treatment of a disposition of a passive activity by gift.

David earned investment income of $20,000,incurred investment interest expense of $12,000,and other investment expenses of $9,000 during the current year.David can deduct $12,000 of investment interest for this year.

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?

Linda owns investments that produce portfolio income and Activity A that produces losses.From a tax perspective,Linda will be better off if Activity A is not passive.

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.

Pablo,who is single,has $95,000 of salary,$10,000 of income from a limited partnership,and a $27,000 passive 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?

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 loss rules?

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?

Describe the types of activities and taxpayers that are subject to the at-risk rules.

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.

Match the term with the correct response.More than one response may be correct. -At-risk amount.

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?

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?

If an owner participates for more than 500 hours in a bicycle rental activity located at a beach resort,any loss from that activity is treated as an active loss that can offset active income.