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Exam 6: Losses and Loss Limitations

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Question 71

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Bruce owns a small apartment building that produces a $25,000 loss during the year.His AGI before considering the rental loss is $85,000.Bruce must be a material participant with respect to the rental activity in order to deduct the $25,000 loss under the real estate rental exception.

A) True
B) False

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Question 72

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A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.

A) True
B) False

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Question 73

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If a taxpayer sells their § 1244 stock at a loss, all of the loss will be ordinary loss.

A taxpayer can carry an NOL forward indefinitely.

In 2018, Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2018 and $100,000 in 2019, Kipp's share being $60,000 in 2018 and $30,000 in 2019.How much of the losses from the partnership can Kipp deduct assuming he owns no other investments and does not participate in the partnership's operations?

In determining whether a debt is a business or nonbusiness bad debt, the debtor's use of the borrowed funds is important.

Three years ago, Sharon loaned her sister $30,000 to buy a car.A note was issued for the loan with the provision for monthly payments of principal and interest.Last year, Sharon purchased a car from the same dealer, Hank's Auto.As partial payment for the car, the dealer accepted the note from Sharon's sister.At the time Sharon purchased the car, the note had a balance of $18,000.During the current year, Sharon's sister died.Hank's Auto was notified that no further payments on the note would be received.At the time of the notification, the note had a balance due of $15,500.What is the amount of loss, with respect to the note, that Hank's Auto may claim on the current year tax return?

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

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

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.

During the current year, Ryan performs personal services as follows: 700 hours in his management consulting practice, 650 hours in a real estate development business, and 550 hours in an apartment leasing operation.He expects that losses will be realized from the two real estate ventures while his consulting practice will show a profit.Ryan files a joint return with his spouse whose salary is $125,000.Discuss the character and treatment of the income and losses generated by these activities.

Dena owns interests in five businesses and has full-time employees in each business.She participates for 100 hours in Activity A, 120 hours in Activity B, 130 hours in Activity C, 140 hours in Activity D, and 125 hours in Activity E.

In the current year, Lucile, who is single and has AGI of $90,000 before considering rental activities, is active in three separate real estate rental activities and is in the 22% 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.

Lloyd, a life insurance salesman, earns a $400,000 salary in the current year.As he works only 30 hours per week in this job, he has time to participate in several other businesses.He owns an ice cream parlor and a car repair shop in Tampa.He also owns an ice cream parlor and a car repair shop in Portland and a car repair shop in St.Louis.A preliminary analysis on December 1 of the current year shows projected income and losses for the various businesses as follows: Lloyd has full-time employees at each of the five businesses listed above.Review all possible groupings for Lloyd's activities.Which grouping method and other strategies should Lloyd consider that will provide the greatest tax advantage?

A loss from a worthless security is always treated as a short-term capital loss.

In 2017, Sarah who files as single) had silverware worth $10,000 basis $6,000) stolen from her home.Sarah's insurance company told her that her policy did not cover the theft.Sarah's other itemized deductions last year were $2,000.She had AGI of $30,000 last year.In August of 2018, Sarah's insurance company decided that Sarah's policy did cover the theft of the silverware and they paid Sarah $5,000.Determine the tax treatment of the $5,000 received by Sarah during 2018.

Carlos receives a gift of a passive activity from his father whose basis was $60,000.Suspended losses related to the activity are $18,000.Carlos will be allowed to offset the $18,000 suspended losses against future passive activity 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:

Match the term with the correct response.More than one response may be correct. -Significant participation activity.

A bond held by an investor that is uncollectible will be treated as a worthless security and hence, produce a capital loss.