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Exam 11: Investor Losses

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Question 21

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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 an active participant with respect to the rental activity in order to deduct the $25,000 loss under the real estate rental exception.

A) True
B) False

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Question 22

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Susan dies owning a passive activity with a basis of $75,000,a fair market value of $140,000,and suspended losses of $80,000.A $15,000 passive loss can be deducted on Susan's final income tax return.

A) True
B) False

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Question 23

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Sarah,who owns a 50% interest in a grocery store,was a material participant in the activity for the last 25 years.She retired from the grocery 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 grocery store resulted in a loss for the current year and Sarah's share of the loss is $40,000.Sarah's share of the income from the office supply store is $75,000.She does not own interests in any other activities.

Jerry's at-risk amount in a passive activity is $100,000 at the beginning of the current year.His current loss from the activity is $45,000.Jerry had no passive activity income during the year.At the end of the current year:

Several years ago,Joy acquired a passive activity.Until 2009,the activity was profitable.Joy's at-risk amount at the beginning of 2009 was $250,000.The activity produced losses of $100,000 in 2009,$80,000 in 2010,and $90,000 in 2011.During the same period,no passive income was recognized.How much is suspended under the at-risk rules and the passive loss rules at the beginning of 2012? At-risk Passive loss

Andrea,a single taxpayer,has $90,000 in salary,$15,000 in income from a limited partnership,and a $40,000 passive loss from a real estate rental activity in which she actively participates.Her modified adjusted gross income is $90,000.Of the $40,000 loss,Andrea may deduct:

When determining whether an individual is a material participant,participation by an owner's spouse generally counts.

David participates 580 hours in an activity during the year; others participate for 1,400 hours.David is a material participant in the activity.

List the taxpayers that are subject to the passive loss rules and summarize the general impact of these rules on these taxpayers.

Kathy is a full-time educator,but she 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 because she is a real estate professional.

In 2011,Judy invested $200,000 for a 25% interest in a limited liability company (LLC) involved in an activity in which she is a material participant.The LLC reported losses of $680,000 in 2011 and $360,000 in 2012 with Judy's share being $170,000 in 2011 and $90,000 in 2012.How much of the losses can Judy deduct?

In 2011,Emily invests $100,000 in a limited partnership that is not a passive activity.During 2011,her share of the partnership loss is $70,000.In 2012,her share of the partnership loss is $50,000.How much can Emily deduct in 2011 and 2012?

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

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.

Ken has a $40,000 loss from an investment in a partnership in which he does not materially participate.He paid $30,000 for his interest.How much of the loss is disallowed by the at-risk rules? How much is disallowed by the passive loss rules?

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

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

Caroline sells a rental house for $320,000 that has an adjusted basis of $280,000.During the years of her ownership,$75,000 of losses have been incurred that were suspended under the passive activity loss rules.Determine the tax treatment to Caroline on the disposition of the property.

Which of the following decreases a taxpayer's at-risk amount?

Lloyd,a life insurance salesman,earns a $400,000 salary in the current year.As he works only 30 hours per week in this job,he has time to participate in several other businesses.He owns an ice cream parlor and a car repair shop in Tampa.He also owns an ice cream parlor and a car repair shop in Portland and a car repair shop in St.Louis.A preliminary analysis on December 1 of the current year shows projected income and losses for the various businesses as follows: Lloyd has full-time employees at each of the five businesses listed above.Review all possible groupings for Lloyd's activities.Which grouping method and other strategies should Lloyd consider that will provide the greatest tax advantage?