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

True/False

Review LaterAdd Note

Review Later

Dick participates in an activity for 90 hours during the year.He has no employees and there are no other participants.Dick is a material participant.

A) True
B) False

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

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:

A) Vic has an at-risk amount in the activity of $120,000 and a suspended passive loss of $80,000.
B) Vic has an at-risk amount in the activity of $200,000 and a suspended passive loss of $80,000.
C) Vic has an at-risk amount in the activity of $120,000 and no suspended passive loss.
D) Vic has an at-risk amount in the activity of $200,000 and no suspended passive loss.
E) None of the above.

F) A) and B)
G) B) and E)

Correct Answer

verified

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

In 2013,Wally had the following insured personal casualty losses (arising from one casualty) .Wally also had $42,000 AGI for the year before considering the casualty. Wally's casualty loss deduction is:

Services performed by an employee are treated as being related to a real estate trade or business if the employee performing the services has more than a 5% ownership interest in the employer.

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?

A nonbusiness bad debt is a debt unrelated to the taxpayer's trade or business either when it was created or when it became worthless.

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.

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.

Lindsey,an attorney,earns $125,000 from her law practice in the current year.In addition,she receives $50,000 in dividends and interest during the year.Further,she incurs a loss of $40,000 from an investment in a passive activity.What is Lindsey's AGI for the year after considering the passive investment?

When determining whether an individual is a material participant,participation by an owner's spouse generally counts.

If an owner participates for more than 500 hours in a DVD rental activity,any loss from that activity is treated as an active loss that can offset active income.

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.

If investment property is stolen,the amount of the loss is the adjusted basis of the property at the time of the theft reduced by $100 and 10% of AGI.

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

Taxpayer's home was destroyed by a storm in the current year and the area was declared a disaster area.If the taxpayer elects to treat the loss as having occurred in the prior year,it will be subject to the 10%-of-AGI reduction based on the AGI of the current year.

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.

In 2012,Kelly earns a salary of $200,000 and invests $40,000 for a 20% interest in a partnership not subject to the passive loss rules.Through the use of $800,000 of nonrecourse financing,the partnership acquires assets worth $1 million.The activity produces a loss of $150,000,of which Kelly's share is $30,000.In 2013,Kelly's share of the loss from the partnership is $15,000.How much of the loss from the partnership can Kelly deduct?

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

A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.

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?