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Exam 11: Investor Losses

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Question 41

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During the year,Eric earned investment income of $20,000,incurred investment interest expense of $12,500,and incurred other investment expenses of $9,000.Eric may deduct $12,500 of investment interest this year.

A) True
B) False

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Question 42

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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 43

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Joyce owns an activity (not real estate)in which she participates for 100 hours a year;her husband participates for 450 hours.Joyce qualifies as a material participant.

Services performed by an employee are treated as being related to a real estate trade or business if the employee performing the services has more than a 5% ownership interest in the employer.

In the current year,Crow Corporation,a closely held C corporation that is not a personal service corporation,has $100,000 of passive losses,$80,000 of active business income,and $20,000 of portfolio income.How much of the passive loss may Crow deduct in the current year?

Jenny spends 32 hours a week,50 weeks a year,operating a DVD rental store that she owns.She also owns a music store in another city that is operated by a full-time employee.Jenny spends 140 hours per year working at the music store.She elects not to group them together as a single activity under the "appropriate economic unit" standard.

White Corporation,a closely held personal service corporation,has $150,000 of passive losses,$120,000 of active business income,and $30,000 of portfolio income.How much of the passive loss may White Corporation deduct?

Josie,an unmarried taxpayer,has $155,000 in salary,$10,000 in income from a limited partnership,and a $26,000 passive loss from a real estate rental activity in which she actively participates.If her modified adjusted gross income is $155,000,how much of the $26,000 loss is deductible?

Kim dies owning a passive activity with a basis of $75,000,a fair market value of $140,000,and suspended losses of $80,000.An $80,000 passive loss can be deducted on Kim's final income tax return.

Anita owns Activity A which produces active income and Activity B which produces losses.From a tax planning perspective,Anita will be better off if Activity B is a passive activity.

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

Nick,an attorney,owns a separate business (not real estate) in which he participates.He has one employee who works part-time in the business.

Ned,a college professor,owns a separate business (not real estate) in which he participates in the current year.He has one employee who works part-time in the business.

Nathan owns Activity A,which produces income,and Activity B,which produces passive losses.From a tax planning perspective,Nathan will be better off if Activity A is passive.

Which of the following decreases a taxpayer's at-risk amount?

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.

Ramon incurs $55,400 of interest expense this year related to his investments.His investment income includes $23,000 of interest and a $25,000 net capital gain on the sale of securities.Ramon has asked you to compute the amount of his deduction for investment interest,taking into consideration any options he might have.The maximum amount of Ramon's investment interest expense deduction for the year is:

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:

Kathy is a full-time educator,but she owns an apartment building and devotes 550 hours to managing the activity.All losses from the rental activity will be considered nonpassive and deductible against active income because she is a real estate professional.

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.