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Exam 6: Losses and Loss Limitations

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Question 41

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Jon owns an apartment building in which he is a material participant and also owns 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.

A) The computer consulting business is a passive activity but the apartment building is not.
B) The apartment building is a passive activity but the computer consulting business is not.
C) Both the apartment building and the computer consulting business are passive activities.
D) Neither the apartment building nor the computer consulting business is a passive activity.
E) None of the above.

F) B) and E)
G) A) and E)

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Question 42

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Caroyl made a gift to Tim of a passive activity adjusted basis of $50,000, suspended losses of $20,000, and a fair market value of $80,000) .No gift tax resulted from the transfer.

A) Tim's adjusted basis is $80,000, and Tim can deduct the $20,000 of suspended losses in the future.
B) Tim's adjusted basis is $80,000.
C) Tim's adjusted basis is $50,000, and the suspended losses are lost.
D) Tim's adjusted basis is $50,000, and Tim can deduct the $20,000 of suspended losses in the future.
E) None of the above.

F) B) and C)
G) D) and E)

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Question 43

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A qualified real estate professional is allowed to treat income or loss from any real estate venture as active except for income or loss from a rental activity.

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

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?

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.

Mary incurred a $20,000 nonbusiness bad debt last year.She also had an $18,000 long-term capital gain last year.Her taxable income for last year was $25,000.During the current year, she unexpectedly collected $12,000 on the debt.How should Mary account for the collection?

Which of the following events would produce a deductible loss in 2018?

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

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 activity 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 activity losses is $0 if it is a personal service corporation. Which of the following answers is correct?

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 at-risk amounts in Activities A and B are $10,000 and $100,000, respectively.What is the amount of Josh's suspended passive activity loss with respect to these activities at the end of the current year?

In 2018, Liam invested $100,000 for a 25% interest in a partnership involved in an activity in which he is a material participant.The partnership reported losses of $340,000 in 2018 and $180,000 in 2019 with Liam's share being $85,000 in 2018 and $45,000 in 2019.How much of the losses can Liam deduct?

If an account receivable written off during a prior year is subsequently collected during the current year, the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.

In 2018, personal casualty gains are allowed to offset personal casualty losses.If an excess casualty loss results, it is not deductible unless attributable to a Federally-declared disaster).

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. -Treatment of a disposition of a passive activity at death.

A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.

The amount of partial worthlessness on a nonbusiness bad debt is deducted in the year partial worthlessness is determined.

A theft of investment property can create or increase a net operating loss for an individual.

Dick participates in an activity for 90 hours during the year.He has no employees and there are no other participants.Dick is a material participant.