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Exam 6: Losses and Loss Limitations

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Question 61

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Josh has investments in two passive activities.Activity A (acquired three years ago) produces income of $30,000 this year, while Activity B (acquired two years ago) produces a loss of $50,000.What is the amount of Josh's suspended loss for the year?

A) $0
B) $18,000
C) $20,000
D) $50,000
E) None of these

F) None of the above
G) A) and B)

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Question 62

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An individual may deduct a loss on rental property even if it does not meet the definition of a casualty loss.

A) True
B) False

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Question 63

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A business theft loss is taken in the year of the theft.

Art's at-risk amount in a passive activity was $60,000 at the beginning of 2018.His loss from the activity in 2018 is $80,000, and he had no passive activity income during the year.Art had $20,000 of passive activity income from the activity in 2019.Under the passive activity loss rules, Art's suspended loss at the end of 2019 is:

Kathy, who is a real estate professional, 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.

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.

In the current year, Kelly had a $35,000 loss from a real estate rental activity in which she is a 10% owner.If she is an active participant and if her modified AGI is $100,000 or less, she can deduct $25,000 of the loss.

James is in the business of debt collection.He purchased a $20,000 account receivable from Green Corporation for $15,000.During the year, he collected $17,000 in final settlement of the account.James can take a $2,000 bad debt deduction in the current year.

The amount of a loss on insured personal use property is reduced by the insurance coverage if no claim is made against the insurer.

Carl, a physician, earns $200,000 from his medical practice in the current year.He receives $45,000 in dividends and interest during the year as well as $5,000 of income from a passive activity.In addition, he incurs a loss of $50,000 from an investment in a passive activity.What is Carl's AGI for the current year after considering the passive investment?

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

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.

Dena owns interests in five businesses and has full-time employees in each business.She participates for 100 hours in Activity A, 120 hours in Activity B, 130 hours in Activity C, 140 hours in Activity D, and 125 hours in Activity E.

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.

A bond held by an investor that is uncollectible will be treated as a worthless security and, hence, produce a capital loss.

A nonbusiness bad debt deduction can be taken any year after the debt becomes totally worthless.

George, an ophthalmologist, owns a separate business (not real estate) in which he participates.He has one employee who works part-time in the business.Which of the following statements is correct?

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

Josh has investments in two passive activities.Activity A, acquired three years ago, produces income in the current year of $60,000.Activity B, acquired last year, produces a loss of $100,000 in the current year.At the beginning of this year, Josh's at-risk amounts in Activities A and B are $10,000 and $100,000, respectively.What is the amount of Josh's suspended passive activity loss with respect to these activities at the end of the current year?

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