FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Losses and Loss Limitations

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Multiple Choice

Review LaterAdd Note

Review Later

Paula owns four separate activities.She elects not to group them together as a single activity under the "appropriate economic unit" standard.Paula participates for 130 hours in Activity A,115 hours in Activity B,260 hours in Activity C,and 100 hours in Activity D.She has one employee,who works 125 hours in Activity D.Which of the following statements is correct?

A) Activities A,B,C,and D are all significant participation activities.
B) Paula is a material participant with respect to Activities A,B,C,and D.
C) Paula is not a material participant with respect to Activities A,B,C,and D.
D) Losses from all of the activities can be used to offset Paula's active income.
E) None of the above.

F) A) and D)
G) A) and E)

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

Jed spends 32 hours a week,50 weeks a year,operating a bicycle rental store that he owns at a resort community.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.

A) Neither store is a passive activity.
B) Both stores are passive activities.
C) Only the bicycle rental store is a passive activity.
D) Only the music store is a passive activity.
E) None of the above.

F) A) and B)
G) A) and C)

Correct Answer

verified

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

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?

Three years ago,Sharon loaned her sister $30,000 to buy a car.A note was issued for the loan with the provision for monthly payments of principal and interest.Last year,Sharon purchased a car from the same dealer,Hank's Auto.As partial payment for the car,the dealer accepted the note from Sharon's sister.At the time Sharon purchased the car,the note had a balance of $18,000.During the current year,Sharon's sister died.Hank's Auto was notified that no further payments on the note would be received.At the time of the notification,the note had a balance due of $15,500.What is the amount of loss,with respect to the note,that Hank's Auto may claim on the current year tax return?

Individuals can deduct from active or portfolio income losses of up to $25,000 from real estate rental activities in which they actively participate.

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.

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,Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2015 and $100,000 in 2016,Kipp's share being $60,000 in 2015 and $30,000 in 2016.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?

On February 20,2014,Bill purchased stock in Pink Corporation (the stock is not small business stock) for $1,000.On May 1,2015,the stock became worthless.During 2015,Bill also had an $8,000 loss on § 1244 small business stock purchased two years ago,a $9,000 loss on a nonbusiness bad debt,and a $5,000 long-term capital gain.How should Bill treat these items on his 2015 tax return?

Which of the following events would produce a deductible loss?

Jim had a car accident in 2015 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.

Tom participates for 100 hours in Activity A and 450 hours in Activity B,both of which are nonrental businesses.Both activities are active.

Mary incurred a $20,000 nonbusiness bad debt last year.She also had an $8,000 long-term capital gain last year.Her taxable income for last year was an NOL of $15,000.During the current year,she unexpectedly collected $12,000 on the debt.How should Mary account for the collection?

Jack owns a 10% interest in a partnership (not real estate)in which his at-risk amount is $42,000 at the beginning of the year.During the year,the partnership borrows $80,000 on a nonrecourse note and incurs a loss of $60,000 from operations.Jack's at-risk amount at the end of the year is $44,000.

Peggy is in the business of factoring accounts receivable.Last year,she purchased a $30,000 account receivable for $25,000.This year,the account was settled for $25,000.How much loss can Peggy deduct and in which year?

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?

If a taxpayer sells their § 1244 stock at a loss,all of the loss will be ordinary loss.

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

A taxpayer is considered to be a material participant if he or she spends more than 500 hours in the activity.

Vic's at-risk amount in a passive activity is $200,000 at the beginning of the current year.His current loss from the activity is $80,000.Vic had no passive activity income during the year.At the end of the current year: