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Exam 11: Investor Losses

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Question 41

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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.

A) True
B) False

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Question 42

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In 2016,Arnold invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Arnold's share.Which of the following statements is incorrect?

A) Since Arnold has only $80,000 of capital at risk,he cannot deduct any more than this amount against his other income.
B) Arnold's nondeductible loss of $20,000 can be carried over and used in future years (subject to the at-risk provisions) .
C) If Arnold has taxable income of $40,000 from the partnership in 2017 and there are no other transactions that affect his at-risk amount,he can use all of the $20,000 loss carried over from 2016.
D) Arnold's $100,000 loss is nondeductible in 2016 and 2017 under the passive activity loss provisions.
E) All of the statements are correct.

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

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Question 43

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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.

Barb borrowed $100,000 to acquire a parcel of land to be held for investment purposes and paid interest of $11,000 on the loan.She has AGI of $75,000 for the year.Other items related to Barb's investments include the following: Investment income $10,000 Long-term capital gain on sale of stock 7,500 Investment counsel fees 500 ​ Barb is unmarried and does not itemize her deductions. ​ a.Determine Barb's current investment interest deduction,assuming she does not make any special election regarding the computation of investment income. b.Discuss the treatment of Barb's investment interest that is disallowed in the current year. c.What election could Barb make to increase the amount of her current investment interest deduction?

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 2016,Joanne invested $90,000 for a 20% interest in a limited liability company (LLC) in which she is a material participant.The LLC reported losses of $340,000 in 2016 and $180,000 in 2017.Joanne's share of the LLC's losses was $68,000 in 2016 and $36,000 in 2017.How much of these losses can Joanne deduct?

Vic's at-risk amount in a passive activity is $200,000 at the beginning of the current year.His current loss from the activity is $80,000.Vic had no passive activity income during the year.At the end of the current year:

Wolf Corporation has active income of $55,000 and a passive activity loss of $33,000 in the current year.Wolf cannot deduct the $33,000 loss if it is a closely held C corporation that is not a personal service corporation.

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

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

Match the treatment for the following types of transactions. 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 they exceed the amount, if any, of the step-up in 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. -Treatment of a disposition of a passive activity by gift.

Gray Company,a closely held C corporation,incurs a $50,000 loss on a passive activity during the year.The company has active income of $34,000 and portfolio income of $24,000.If Gray is not a personal service corporation,it may deduct $34,000 of the passive activity loss.

A taxpayer is considered to be a material participant if he or she spends more than 500 hours in the activity.

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.

Orange Corporation,a closely held (non-personal service)C corporation,earns active income of $300,000 in the current year.The corporation also receives $35,000 in dividends and incurs a loss of $50,000 from an investment in a passive activity.What is Orange's income for the year after considering the passive investment?

When a taxpayer disposes of a passive activity by gift,what happens to any unused passive activity losses?

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.

Identify from the list below the type of disposition of a passive activity where the taxpayer keeps the suspended losses of the disposed activity and utilizes them on a subsequent taxable disposition.

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.

Individuals with modified AGI of $100,000 can deduct against active or portfolio income losses of up to $25,000 from real estate rental activities in which they actively participate.