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Exam 11: Investor Losses

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Question 31

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Identify the types of income that are classified as investment income. Discuss the flexibility that a taxpayer has with respect to certain types of income that may potentially be considered investment income.

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Investment income is gross income from i...

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Question 32

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Consider the following three statements: In which of the three cases above could the rental activity automatically be considered a passive activity?

A) Case 1 only.
B) Case 2 only.
C) Case 3 only.
D) Cases 1, 2, and 3.
E) None of the above.

F) A) and B)
G) A) and C)

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Question 33

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In the current year, Rich has a $40,000 loss from a business he owns.His at-risk amount at the end of the year, prior to considering the current year loss, is $24,000.He will be allowed to deduct the $40,000 loss this year if he is a material participant in the business.

Ahmad owns four activities. He participated for 120 hours in Activity A, 150 hours in Activity B, 140 hours in Activity C, and 100 hours in Activity D. Which of the following statements is correct?

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

Sam, who earns a salary of $400,000, invested $160,000 for a 40% working interest in an oil and gas limited partnership (not a passive activity) last year.Through the use of $1,600,000 of nonrecourse financing, the partnership acquired assets worth $2 million.Depreciation, interest, and other deductions related to the activity resulted in a loss in the partnership's initial year of $300,000, of which Sam's share was $120,000.Sam's share of loss from the partnership is $60,000 in the current year.How much of the loss from the partnership can Sam deduct in each year?

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: Which of the following answers is correct?

Coyote Corporation has active income of $45,000 and a passive loss of $23,000 in the current year.Coyote cannot deduct the $23,000 loss if it is a personal service corporation.

Tonya owns an interest in an activity (not real estate) that converted recourse financing to nonrecourse financing.Recapture of previously allowed losses is required if Tonya's at-risk amount is reduced below zero as a result of the debt restructuring.

Eric makes an installment sale of a passive activity having suspended losses of $40,000.He collects 25% of the sales price in the current year, and will collect 25% in each of the next three years.Eric can deduct $10,000 of the passive loss this year.

Emily earns a salary of $150,000, and invests $60,000 for a 20% interest in a passive activity. Operations of the activity result in a loss of $400,000, of which Emily's share is $80,000. How is her loss characterized?

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?

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.

Alex has three passive activities with at-risk amounts in excess of $100,000 for each.During the year, the activities produced the following income (losses) . Alex's suspended losses are as follows:

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.

Wolf Corporation has active income of $55,000 and a passive 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.

In 2012, 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?

Describe the types of activities and taxpayers that are subject to the at-risk rules.

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

Vail owns interests in a beauty salon, a natural foods store, and a tanning salon. Several full-time employees work at each of the enterprises. As of the end of November of the current year, Vail has worked 180 hours in the beauty salon, 220 hours at the natural foods store, and 80 hours at the tanning salon. These three ventures collectively will produce income. Vail also owns one other passive activity that is producing a loss (a limited partnership in which she has reported no participation). How should Vail plan her activities for the remainder of the year?