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Exam 11: Investor Losses

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Question 21

True/False

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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.

A) True
B) False

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Question 22

Multiple Choice

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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.

A) All four businesses can be treated as a single activity if Tara elects to do so.
B) Only the shoe store and bookstore can be treated as a single activity,the restaurant must be treated as a separate activity,and the jewelry store must be treated as a separate activity.
C) The shoe store,bookstore,and restaurant can be treated as a single activity,and the jewelry store must be treated as a separate activity.
D) All four businesses must be treated as separate activities.
E) None of the above.

F) C) and D)
G) B) and C)

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Question 23

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Pablo,who is single,has $95,000 of salary,$10,000 of income from a limited partnership,and a $27,000 passive loss from a real estate rental activity in which he actively participates.His modified adjusted gross income is $95,000.Of the $27,000 loss,how much is deductible?

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

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.

Sarah purchased for $100,000 a 10% interest in a business venture that is not subject to the passive activity rules.During the first year,her share of the entity's loss was $120,000.At the beginning of the second year,the entity obtained $800,000 of recourse financing.During the second year,Sarah withdrew cash of $20,000,and her share of the entity's loss was $25,000.Calculate the amount of loss that Sarah may claim in each of the two years and determine her at-risk amount at the end of each year.

Match the term with the correct response. More than one response may be correct. a.Taxpayer devotes time aggregating more than 500 hours in all significant participation activities during the year.b.Participates in making management decisions in a significant and bonafide sense.c.One in which the individual's participation equals more than 100 hours during the year.d.Taxpayer devotes time in the activity which constitutes substantially all of the participation in the activity of all individuals.e.Both options a. and d. are correct.f.No correct choice is given. -Significant participation activity.

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?

Match the term with the correct response. More than one response may be correct. a.Taxpayer devotes time aggregating more than 500 hours in all significant participation activities during the year.b.Participates in making management decisions in a significant and bonafide sense.c.One in which the individual's participation equals more than 100 hours during the year.d.Taxpayer devotes time in the activity which constitutes substantially all of the participation in the activity of all individuals.e.Both options a. and d. are correct.f.No correct choice is given. -Active participation.

Identify from the list below the type of disposition of a passive activity where the taxpayer keeps the suspended losses of the disposed activity and utilizes them on a subsequent taxable disposition.

Oriole Corporation has active income of $45,000 and a passive loss of $23,000 in the current year.Under an exception,Oriole can deduct the $23,000 loss if it is a personal service corporation.

Ahmad owns four activities.He participated for 120 hours in Activity A,150 hours in Activity B,140 hours in Activity C,and 100 hours in Activity D.Which of the following statements is correct?

In 2015,Emily invests $120,000 in a limited partnership that is not a passive activity.During 2015,her share of the partnership loss is $90,000.In 2016,her share of the partnership loss is $50,000.How much can Emily deduct in 2015 and 2016?

In the current year,Lucile,who has AGI of $70,000 before considering rental activities,is active in three separate real estate rental activities and is in the 28% tax bracket.She had $15,000 of losses from Activity A,$25,000 of losses from Activity B,and income of $20,000 from Activity C.She also had $3,100 of tax credits from Activity A.Calculate her deductions and credits currently allowed and the suspended losses and credits.

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

Joyce owns an activity (not real estate) in which she participates for 100 hours a year;her husband participates for 450 hours.Joyce qualifies as a material participant.

Bob realized a long-term capital gain of $8,000.In calculating his net investment income,Bob may elect to include the gain in investment income.

Sherri owns an interest in a business that is not a passive activity and in which she has $20,000 at risk.If the business incurs a loss from operations during the year and her share of the loss is $32,000,this loss will be fully deductible.

Describe the general rules that limit the deduction of investment interest expense.

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.