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Exam 11: Investor Losses

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Question 21

Multiple Choice

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Which of the following is not a factor that should be considered in determining whether an activity is treated as an appropriate economic unit?

A) The interdependencies between the activities.
B) The extent of common control.
C) The extent of common ownership.
D) The geographical location.
E) All of the above are relevant factors.

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

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Question 22

True/False

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

A) True
B) False

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Question 23

Multiple Choice

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Match the treatment for the following types of transactions. -Treatment of a disposition of a passive activity at death.

White Corporation, a closely held personal service corporation, has $150,000 of passive losses, $120,000 of active business income, and $30,000 of portfolio income. How much of the passive loss can White Corporation deduct?

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.

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

Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a limited partnership, and a $26,000 passive loss from a real estate rental activity in which she actively participates. If her modified adjusted gross income is $155,000, how much of the $26,000 loss is deductible?

Vic's at­risk 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:

Matt has three passive activities and has at-risk amounts in excess of $100,000 for each. During the year, the activities produced the following income (losses) . $\begin{array}{lr}\text { Activity A } & (\$ 60,000) \\\text { Activity B } & (40,000) \\\text { Activity C } & 75,000 \\\text { Net passive loss } & (\$ 25,000) \end{array}$ Matt's suspended losses are as follows:

In 2014, Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity. The partnership reported losses of $200,000 in 2014 and $100,000 in 2015, Kipp's share being $60,000 in 2014 and $30,000 in 2015. 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?

Wes's at­risk 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?

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 wife whose salary is $125,000. Discuss the character and treatment of the income and losses generated by these activities.

In 2014, Emily invests $120,000 in a limited partnership that is not a passive activity. During 2014, her share of the partnership loss is $90,000. In 2015, her share of the partnership loss is $50,000. How much can Emily deduct in 2014 and 2015?

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

Caroyl 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.

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.

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.

Judy incurred $58,500 of interest expense this year related to her investments. Her investment income includes $15,000 of interest, $9,000 of qualified dividends, and a $22,500 net capital gain on the sale of securities. The maximum amount of Judy's investment interest expense deduction for the year is:

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: 1() Green's current deduction for passive losses is $50,000 if it is a closely held C corporation that Is not a personal service corporation. 2() Green's current deduction for passive losses is $0 if it is a personal service corporation. Which of the following answers is correct?

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