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Exam 11: Investor Losses

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Question 51

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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:

A) $75,000 is allocated to C; $0 to A and B.
B) $37,500 is allocated to A; $37,500 to B.
C) $56,250 is allocated to A; $18,750 to B.
D) $25,000 is allocated to A,B,and C.
E) None of the above.

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

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Question 52

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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.

A) Maria cannot deduct the $80,000 loss from the restaurant because she is not a material participant.
B) Maria can offset the $80,000 loss against the $150,000 of income from the retail store.
C) Maria will not be able to deduct any losses from the restaurant until she has been retired for at least three years.
D) Assuming Maria continues to hold the interest in the restaurant, she will always treat the losses as active.
E) None of the above.

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

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Question 53

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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?

Wes's at-risk amount in a passive activity is $25,000 at the beginning of the current year.His current loss from the activity is $35,000 and he has no passive activity income.At the end of the current year,which of the following statements is incorrect?

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 loss.

Tom participates for 300 hours in Activity A and 250 hours in Activity B,both of which are nonrental businesses.Both activities are active.

Linda owns investments that produce portfolio income and Activity A that produces losses.From a tax perspective,Linda will be better off if Activity A is not passive.

Joyce,an attorney,earns $100,000 from her law practice in the current year.In addition,she receives $35,000 in dividends and interest during the year.Further,she incurs a loss of $35,000 from an investment in a passive activity.What is Joyce's AGI for the year after considering the passive investment?

In the current year,Spring Corporation,a closely held personal service corporation,has $120,000 of passive losses,$70,000 of active business income,and $50,000 of portfolio income.How much of the passive loss may Spring deduct in the current year?

Paula owns four separate activities.She elects not to group them together as a single activity under the "appropriate economic unit" standard.Paula participates for 130 hours in Activity A,115 hours in Activity B,260 hours in Activity C,and 100 hours in Activity D.She has one employee,who works 125 hours in Activity D.Which of the following statements is correct?

Harry earned investment income of $18,500,incurred investment interest expense of $15,500,and other investment expenses of $9,000 during the current year.Harry may deduct $9,500 of investment interest expense this year and carry forward $6,000 to future years.

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.

Jed spends 32 hours a week,50 weeks a year,operating a DVD rental store that he owns.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.

Ned,a college professor,owns a separate business (not real estate) in which he participates in the current year.He has one employee who works part-time in the business.

A taxpayer is considered to be a material participant in a significant participation activity if he or she spends at least 400 hours in the activity.

Seth had interest income of $31,000,investment expenses of $28,000,and a long-term capital gain of $8,000 on an investment.In calculating his net investment income,Seth may deduct a maximum of $11,000 investment interest.

What special passive loss treatment is available to real estate activities?

Green,Inc.,a closely held personal service corporation,has the following transactions in the current year: $100,000 of passive losses,$80,000 of active business income,and $20,000 of portfolio income.How much of the passive loss may Green use to offset other types of income this year?

Pat sells a passive activity for $100,000 that has an adjusted basis of $55,000.During the years of her ownership,$60,000 of losses have been incurred that were suspended under the passive activity loss rules.In addition,the passive activity generated tax credits of $10,000 that were not utilized and suspended.Determine the tax treatment to Pat on the disposition of the property.

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.