Question 1

George, an ophthalmologist, owns a separate business (not real estate)  in which he participates.He has one employee who works part-time in the business.Which of the following statements is correct?

Accepted Answer

A)  If George participates for 500 hours and the employee participates for 520 hours during the year, George qualifies as a material participant.
B)  If George participates for 600 hours and the employee participates for 1,000 hours during the year, George qualifies as a material participant.
C)  If George participates for 120 hours and the employee participates for 120 hours during the year, George does not qualify as a material participant.
D)  If George participates for 95 hours and the employee participates for 5 hours during the year, George probably does not qualify as a material participant.
E)  None of these.F) A) and B)
G) A) and C)

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

Kelly, who earns a yearly salary of $120,000, sold an activity with a suspended passive activity loss of $44,000.The activity was sold at a loss and Kelly has no other passive activities.The suspended loss is not deductible.

Accepted Answer

A) True 
 B)False

Question 4

Faye dies owning an interest in a passive activity property (adjusted basis of $150,000, suspended losses of $52,000, and a fair market value of $180,000) .What, if any, can be deducted on her final income tax return?

Accepted Answer

A)  $52,000.
B)  $30,000.
C)  $22,000.
D)  $0.
E)  None of these.F) C) and D)
G) A) and B)

Question 5

Jed spends 32 hours a week, 50 weeks a year, operating a bicycle rental store that he owns at a resort community. He also owns a music store in another city that is operated by a full-time employee.He elects not to group them together as a single activity under the "appropriate economic unit" standard.Jed spends 40 hours per year working at the music store.

Accepted Answer

A)  Neither store is a passive activity.
B)  Both stores are passive activities.
C)  Only the bicycle rental store is a passive activity.
D)  Only the music store is a passive activity.
E)  None of these is correct.F) B) and D)
G) A) and E)

Question 6

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.All of the $80,000 passive activity loss can be deducted on Kim's final income tax return.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  The losses are allowed in the years in which gain is recognized.
B)  Suspended losses are allowed to offset the income from the activity, other passive activities, or active income.
C)  Suspended losses are allowed to the taxpayer to the extent that they exceed the amount, if any, of the step-upin basis allowed.
D)  Any suspended losses may be used in the current year.
E)  The suspended losses are added to the basis of the property.F) No correct choice is given.G) A) and E)
H) D) and E)

Question 8

Oriole Corporation has active income of $45,000 and a passive activity loss of $23,000 in the current year.Under an exception, Oriole can deduct the $23,000 loss if it is a personal service corporation.

Accepted Answer

A) True 
 B)False

Question 9

Roger owns and actively participates in the operations of an apartment building that 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.

Accepted Answer

A) True 
 B)False

Question 10

Leigh, who owns a 50% interest in a sporting goods store, was a material participant in the activity for the last 15 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.

Accepted Answer

A)  Leigh cannot deduct the $40,000 loss from the sporting goods store because she is not a material participant.
B)  Leigh can offset the $40,000 loss from the sporting goods store against the $75,000 of income from the office supply store.
C)  Leigh will not be able to deduct any losses from the sporting goods store until future years.
D)  Leigh will not be able to deduct any losses from the sporting goods store until she has been retired for at least four years.
E)  None of these these applies here.F) C) and D)
G) A) and E)

Question 11

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 and that his consulting practice will show a profit.Ethan files a joint return with his spouse whose salary is $125,000.The income and losses from the following ventures are considered active and not subject to the passive activity loss limitations:

Accepted Answer

A)  Only the information technology consulting practice.
B)  Only the information technology consulting practice and the real estate development business.
C)  Only the information technology consulting practice and the condominium leasing operation.
D)  All three of the ventures are considered active and not subject to the passive activity loss limitations.
E)  None of these.F) None of the above
G) A) and B)

Question 12

From January through November, Vern participated for 420 hours as a salesman in a partnership in which he owns a 50% interest.The partnership has four full-time employees.During December, Vern spends 110 hours cleaning the store and painting the walls in order to meet the material participation standards.Vern qualifies as a material participant.

Accepted Answer

A) True 
 B)False

Question 13

Tess owns a building in which she rents apartments to tenants and operates a restaurant.Which of the following statements is incorrect?

Accepted Answer

A)  If 60% of Tess's gross income is from apartment rentals and 40% is from the restaurant, the rental operation and the restaurant business must be treated as separate activities.
B)  If 95% of Tess's gross income is from apartment rentals and 5% is from the restaurant, she may treat the rental operation and the restaurant business as a single activity that is a rental activity.
C)  If 5% of Tess's gross income is from apartment rentals and 95% is from the restaurant, she may treat the rental operation and the restaurant business as a single activity that is not a rental activity.
D)  If 98% of Tess's gross income is from apartment rentals and 2% is from the restaurant, the rental operation and the restaurant business must be treated as a single activity that is not a rental activity.
E)  None of these is correct.F) A) and E)
G) A) and D)

Question 14

Carol 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.

Accepted Answer

A)  Tim's adjusted basis is $80,000, and he 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 he can deduct the $20,000 of suspended losses in the future.
E)  None of these applies here.F) B) and E)
G) A) and C)

Question 15

All of a taxpayer's tax credits relating to a passive activity can be utilized when the activity is sold at a loss.

Accepted Answer

A) True 
 B)False

Question 16

Match the treatment for the following types of transactions.
-Treatment of a sale of a passive activity for which all of the realized gain or loss is recognized currently.

Accepted Answer

A)  The losses are allowed in the years in which gain is recognized.
B)  Suspended losses are allowed to offset the income from the activity, other passive activities, or active income.
C)  Suspended losses are allowed to the taxpayer to the extent that they exceed the amount, if any, of the step-upin basis allowed.
D)  Any suspended losses may be used in the current year.
E)  The suspended losses are added to the basis of the property.F) No correct choice is given.G) None of the above
H) A) and D)

Question 17

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

Accepted Answer

A)  Taxpayer devotes time aggregating more than 500 hours in all significant participation activities during the year.
B)  Taxpayer participates in making management decisions in a significant and bonafide sense.
C)  It is one in which the individual's participation equals more than 100 hours during the year.
D)  Taxpayer devotes time in the activity, which constitutes substantially all of the participation in the activity of all individuals.
E)  Both options a.and d.are correct.F) No correct choice is given.G) D) and F)
H) C) and D)

Question 18

Tara owns a shoe store and a bookstore.Both businesses are operated in a mall.She also owns a restaurant across the street and a jewelry store several blocks away.

Accepted Answer

A)  All four businesses can be treated as a single activity if Tara elects to do so.
B)  Only the shoe store and bookstore can be treated as a single activity, the restaurant must be treated as a separate activity, and the jewelry store must be treated as a separate activity.
C)  The shoe store, bookstore, and restaurant can be treated as a single activity, and the jewelry store must be treated as a separate activity.
D)  All four businesses must be treated as separate activities.
E)  None of these is correct.F) A) and B)
G) D) and E)

Question 19

Which of the following factors should be considered in determining whether an activity is treated as an appropriate economic unit?

Accepted Answer

A)  The similarities and differences in types of business.
B)  The extent of common control.
C)  The extent of common ownership.
D)  The geographic location.
E)  All of these.F) A) and B)
G) B) and E)

Question 20

Kathy, who is a real estate professional, 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.

Accepted Answer

A) True 
 B)False

Exam 11: Investor Losses

Which of the following factors should be considered in determining whether an activity is treated as an appropriate economic unit?

Correct Answer
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Tess owns a building in which she rents apartments to tenants and operates a restaurant.Which of the following statements is incorrect?

Correct Answer
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Faye dies owning an interest in a passive activity property (adjusted basis of $150,000, suspended losses of $52,000, and a fair market value of $180,000) .What, if any, can be deducted on her final income tax return?

Correct Answer
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Roger owns and actively participates in the operations of an apartment building that 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.

Correct Answer
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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.

Correct Answer
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Correct Answer
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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.All of the $80,000 passive activity loss can be deducted on Kim's final income tax return.

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

Correct Answer
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Correct Answer
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Carol 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.

Correct Answer
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Kelly, who earns a yearly salary of $120,000, sold an activity with a suspended passive activity loss of $44,000.The activity was sold at a loss and Kelly has no other passive activities.The suspended loss is not deductible.

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

Correct Answer
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George, an ophthalmologist, owns a separate business (not real estate) in which he participates.He has one employee who works part-time in the business.Which of the following statements is correct?

Correct Answer
verified

Match the treatment for the following types of transactions. -Treatment of a sale of a passive activity for which all of the realized gain or loss is recognized currently.

Correct Answer
verified

Correct Answer
verified

Oriole Corporation has active income of $45,000 and a passive activity loss of $23,000 in the current year.Under an exception, Oriole can deduct the $23,000 loss if it is a personal service corporation.

Correct Answer
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Correct Answer
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Kathy, who is a real estate professional, 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.

Correct Answer
verified

Tara owns a shoe store and a bookstore.Both businesses are operated in a mall.She also owns a restaurant across the street and a jewelry store several blocks away.

Correct Answer
verified

All of a taxpayer's tax credits relating to a passive activity can be utilized when the activity is sold at a loss.

Correct Answer
verified

Exam 11: Investor Losses

Which of the following factors should be considered in determining whether an activity is treated as an appropriate economic unit?

Correct AnswerverifiedShow Answer

Tess owns a building in which she rents apartments to tenants and operates a restaurant.Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

Faye dies owning an interest in a passive activity property (adjusted basis of $150,000, suspended losses of $52,000, and a fair market value of $180,000) .What, if any, can be deducted on her final income tax return?

Correct AnswerverifiedShow Answer

Roger owns and actively participates in the operations of an apartment building that 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.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.All of the $80,000 passive activity loss can be deducted on Kim's final income tax return.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Carol 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.

Correct AnswerverifiedShow Answer

Kelly, who earns a yearly salary of $120,000, sold an activity with a suspended passive activity loss of $44,000.The activity was sold at a loss and Kelly has no other passive activities.The suspended loss is not deductible.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

George, an ophthalmologist, owns a separate business (not real estate) in which he participates.He has one employee who works part-time in the business.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Match the treatment for the following types of transactions. -Treatment of a sale of a passive activity for which all of the realized gain or loss is recognized currently.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Oriole Corporation has active income of $45,000 and a passive activity loss of $23,000 in the current year.Under an exception, Oriole can deduct the $23,000 loss if it is a personal service corporation.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Kathy, who is a real estate professional, 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.

Correct AnswerverifiedShow Answer

Tara owns a shoe store and a bookstore.Both businesses are operated in a mall.She also owns a restaurant across the street and a jewelry store several blocks away.

Correct AnswerverifiedShow Answer

All of a taxpayer's tax credits relating to a passive activity can be utilized when the activity is sold at a loss.

Correct AnswerverifiedShow Answer

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