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Exam 6: Losses and Loss Limitations

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Question 21

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In 2017, Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2017 and $100,000 in 2018, Kipp's share being $60,000 in 2017 and $30,000 in 2018.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?

A) $0 in 2017; $30,000 in 2018.
B) $60,000 in 2017; $30,000 in 2018.
C) $60,000 in 2017; $5,000 in 2018.
D) $60,000 in 2017; $0 in 2018.
E) None of the above.

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

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Question 22

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Al, who is single, has a gain of $40,000 on the sale of § 1244 stock (small business stock) and a loss of $80,000 on the sale of § 1244 stock.As a result, Al has a $40,000 ordinary loss.

A) True
B) False

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Question 23

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Sandra acquired a passive activity three years ago.Until last year, the activity was profitable and her at-risk amount was $300,000.Last year, the activity produced a loss of $100,000, and in the current year, the loss is $50,000.Assuming Sandra has received no passive activity income in the current or prior years, her suspended passive activity loss from the activity is:

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.

A taxpayer who sustains a casualty loss in an area designated by the President of the United States as a disaster area may take the loss in the year in which the loss occurred or elect to take the loss in the previous year.Identify factors that should be considered in deciding in which year to take the loss.

If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value but less than its adjusted basis, a gain is recognized.

A qualified real estate professional is allowed to treat income or loss from any real estate venture as active except for income or loss from a rental activity.

Jon owns an apartment building in which he is a material participant and also owns a computer consulting business.Of the 2,000 hours he spends on these activities during the year, 55% of the time is spent operating the apartment building and 45% of the time is spent in the computer consulting business.

The amount of loss for partial destruction of business property is the decline in fair market value of the business property.

Last year, Lucy purchased a $100,000 account receivable for $90,000.During the current year, Lucy collected $97,000 on the account.What are the tax consequences to Lucy associated with the collection of the account receivable? No subsequent collections are expected.

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.

Charles owns a business with two separate departments.Department A produces $100,000 of income and Department B incurs a $60,000 loss.Charles participates for 550 hours in Department A and 100 hours in Department B.He has full-time employees in both departments.

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.

Jim had a car accident in 2017 in which his car was completely destroyed.At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of $40,000.Jim used the car 100% of the time for business use.Jim received an insurance recovery of 70% of the value of the car at the time of the accident.If Jim's AGI for the year is $60,000, determine his deductible loss on the car.

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 activity income.

Anne sells a rental house for $100,000 (adjusted basis of $55,000).During her ownership, $60,000 of losses have been suspended under the passive activity loss rules.Determine the tax treatment to Anne on the disposition of the property.

On June 2, 2016, Fred's TV Sales sold Mark a large HD TV, on account, for $12,000.Fred's TV Sales uses the accrual method.In 2017, when the balance on the account was $8,000, Mark filed for bankruptcy.Fred was notified that he could not expect to receive any of the amount owed to him.In 2018, final settlement was made and Fred received $1,000.How much bad debt loss can Fred deduct in 2018?

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.

Rick, a computer consultant, owns a separate business (not real estate) in which he participates.He has one employee who works part-time in the business.

The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.