FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 11: Investor Losses

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Essay

Review LaterAdd Note

Review Later

During the year,James performs the following personal services in three separate activities: 800 hours as a CPA in his tax practice,400 hours in a real estate development business (in which he is not a material participant),and 600 hours in an apartment leasing operation.He expects that losses will be realized from the two real estate ventures while his tax practice will show a profit.James files a joint return with his wife whose salary is $200,000.What is the character of the income and losses generated by these activities?

Correct Answer

verified

James is a material participant in the t...

View Answer

Show Answer

Question 42

Essay

Review LaterAdd Note

Review Later

Discuss the treatment given to suspended passive activity losses and credits.What happens to an activity's unused losses and credits when the activity is sold?

Correct Answer

verified

In general,passive losses are deductible...

View Answer

Show Answer

Question 43

True/False

Review LaterAdd Note

Mary Jane participates for 100 hours during the year in an activity she owns.She has no employees and is the only participant in the activity.The activity is a significant participation activity.

Art owns significant interests in a hardware store and a bookstore at a mall in Washington,D.C.He also owns a hardware store and a bookstore at a mall in San Francisco.Which of the following is not a way in which the interests may be grouped?

Jared earned investment income of $22,000 and incurred investment interest expense of $14,000 during 2011.He incurred other investment expenses of $7,000 during the year.Jared may deduct $14,000 of investment interest in 2011.

Samantha sells a passive activity (adjusted basis of $50,000) for $90,000.Suspended losses attributable to this property total $30,000.The realized gain and the taxable gain are:

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.

Coyote Corporation has active income of $45,000 and a passive loss of $23,000 in the current year.Coyote cannot deduct the $23,000 loss if it is a personal service corporation.

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.

Eric makes an installment sale of a passive activity having suspended losses of $40,000.He collects 25% of the sales price in the current year,and will collect 25% in each of the next three years.Eric can deduct $10,000 of the passive loss this year.

Tonya owns an interest in an activity (not real estate)that converted recourse financing to nonrecourse financing.Recapture of previously allowed losses is required if Tonya's at-risk amount is reduced below zero as a result of the debt restructuring.

Kenton 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 $110,000 in the current year.At the beginning of this year,Kenton's at-risk amounts in Activities A and B are $10,000 and $120,000,respectively.What is the amount of Kenton's suspended passive loss with respect to these activities at the end of the current year?

Rachel participates 150 hours in Activity A and 400 hours in Activity B,both of which are nonrental businesses.Both activities are passive.

Match the treatment for the following types of transactions.

Jed spends 32 hours a week,50 weeks a year,operating a DVD rental store that he owns.He also owns a music store in another city that is operated by a full-time employee.He elects not to group them together as a single activity under the "appropriate economic unit" standard.Jed spends 40 hours per year working at the music store.

Identify how the passive loss rules broadly classify various types of income and losses.Provide examples of each category.

In 2011,Pearl invests $80,000 for a 10% partnership interest in an activity in which she is a material participant.The partnership reports losses of $500,000 in 2011 and $450,000 in 2012.Pearl's share of the partnership's losses is $50,000 in 2011 and $45,000 in 2012.How much of the losses can Pearl deduct?

Tom owns five activities,and he elects not to group them together as a single activity under the "appropriate economic unit" standard.During the year,he participates for 120 hours in Activity A,150 hours in Activity B,140 hours in Activity C,110 hours in Activity D,and 100 hours in Activity E.

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.

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.