Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

Orange Corporation,a closely held (non-personal service)C corporation,earns active income of $300,000 in the current year.The corporation also receives $35,000 in dividends and incurs a loss of $50,000 from an investment in a passive activity.What is Orange's income for the year after considering the passive investment?

Accepted Answer

A closely held (non-personal service)C corporation can offset passive losses against active,but not portfolio income.Therefore,Orange's income is $285,000 [($300,000 active income - $50,000 passive loss)+ $35,000 portfolio income].

Question 3

In 2014,Emily invests $120,000 in a limited partnership that is not a passive activity.During 2014,her share of the partnership loss is $90,000.In 2015,her share of the partnership loss is $50,000.How much can Emily deduct in 2014 and 2015?

Accepted Answer

Although the passive loss rules do not a...

Question 4

Harry earned investment income of $18,500,incurred investment interest expense of $15,500,and other investment expenses of $9,000 during the current year.Harry may deduct $9,500 of investment interest expense this year and carry forward $6,000 to future years.

Accepted Answer

A) True 
 B)False

Question 5

Kelly,who earns a yearly salary of $120,000,sold an activity with a suspended passive loss of $44,000.The activity was sold at a loss and Kelly has no other passive activities.The suspended loss is not deductible.

Accepted Answer

A) True 
 B)False

Question 6

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?

Accepted Answer

A)  $0
B)  $18,000
C)  $20,000
D)  $50,000
E)  None of theseF) A) and E)
G) D) and E)

Question 7

Identify the types of income that are classified as investment income.Discuss the flexibility that a taxpayer has with respect to certain types of income that may potentially be considered investment income.

Accepted Answer

Investment income is gross income from i...

Question 8

Last year,Ted invested $100,000 for a 50% interest in a partnership in which he was a material participant.The partnership incurred a loss,and Ted's share was $150,000.Which of the following statements is incorrect?

Accepted Answer

A)  Ted's nondeductible loss of $50,000 can be carried over and used in the future (subject to the at­risk provisions) .
B)  If Ted has taxable income of $50,000 from the partnership in the current year and no other transactions that affect his at-risk amount,he can use all of the $50,000 loss carried over.
C)  Since Ted has only $100,000 of capital at risk,he cannot deduct more than $100,000 against his other income.
D)  None of these is incorrect.E) All of the above
F) None of the above

Question 9

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

Accepted Answer

A) True 
 B)False  True

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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.

Accepted Answer

A)  All five of Dena's activities are significant participation activities.
B)  Dena is a material participant with respect to all five activities.
C)  Dena is not a material participant in any of the activities.
D)  Dena is a material participant with respect to Activities B,C,D,and E.
E)  None of these.F) All of the above
G) A) and D)

Question 12

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?

Accepted Answer

A)  Activities A,B,C,and D are all significant participation activities.
B)  Activities A,B,and C are significant participation activities.
C)  Ahmad is a material participant with respect to Activities A,B,and C.
D)  Ahmad is a material participant with respect to Activities A,B,C,and D.
E)  None of these.F) B) and C)
G) C) and D)

Question 13

Lucy owns and actively participates in the operations of an apartment complex that produces a $50,000 loss during the year.Her modified AGI is $125,000 from an active business.Disregarding any at-risk amount limitation,she may deduct $25,000 of the loss,and the remaining $25,000 is a suspended passive loss.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

Match the treatment for the following types of transactions.
-Treatment of a sale of a passive activity where all of the realized gain or loss is recognized currently.

Accepted Answer

A)  The losses are allowed in the years in which gain is recognized.
B)  Suspended losses are allowed to offset the income from the activity,other passive activities,or active income.
C)  Suspended losses are allowed to the taxpayer to the extent they exceed the amount,if any,of the step-up in basis allowed.
D)  Any suspended losses may be used in the current year.
E)  The suspended losses are added to the basis of the property.F) No correct choice is given.G) B) and E)
H) B) and D)

Question 16

Match the treatment for the following types of transactions.
-Treatment of a disposition of a passive activity at death.

Accepted Answer

A)  The losses are allowed in the years in which gain is recognized.
B)  Suspended losses are allowed to offset the income from the activity,other passive activities,or active income.
C)  Suspended losses are allowed to the taxpayer to the extent they exceed the amount,if any,of the step-up in basis allowed.
D)  Any suspended losses may be used in the current year.
E)  The suspended losses are added to the basis of the property.F) No correct choice is given.G) B) and F)
H) A) and E)

Question 17

In 2014,Arnold invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Arnold's share.Which of the following statements is incorrect?

Accepted Answer

A)  Since Arnold has only $80,000 of capital at risk,he cannot deduct any more than this amount against his other income.
B)  Arnold's nondeductible loss of $20,000 can be carried over and used in future years (subject to the at­risk provisions) .
C)  If Arnold has taxable income of $40,000 from the partnership in 2015 and there are no other transactions that affect his at-risk amount,he can use all of the $20,000 loss carried over from 2014.
D)  Arnold's $100,000 loss is nondeductible in 2014 and 2015 under the passive loss provisions.
E)  All of the statements are correct.F) All of the above
G) A) and E) D

Question 18

In 2013,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 2014,Kelly's share of the loss from the partnership is $15,000.How much of the loss from the partnership can Kelly deduct?

Accepted Answer

Kelly has $40,000 at risk at the end of ...

Question 19

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.

Accepted Answer

A)  If Rick participates for 500 hours and the employee participates for 620 hours during the year,Rick qualifies as a material participant.
B)  If Rick participates for 550 hours and the employee participates for 2,000 hours during the year,Rick qualifies as a material participant.
C)  If Rick participates for 120 hours and the employee participates for 120 hours during the year,Rick does not qualify as a material participant.
D)  If Rick participates for 95 hours and the employee participates for 5 hours during the year,Rick probably does not qualify as a material participant.
E)  None of these.F) A) and B)
G) A) and C)

Question 20

When a taxpayer disposes of a passive activity by gift,what happens to any unused passive losses?

Accepted Answer

In a disposition of a taxpayer...

Exam 11: Investor Losses

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.

Correct Answer
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Correct Answer
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A closely held (non-personal service)C corporation can offset passive losses against active,but not portfolio income.Therefore,Orange's income is $285,000 [($300,000 active income - $50,000 passive loss)+ $35,000 portfolio income].

In 2014,Emily invests $120,000 in a limited partnership that is not a passive activity.During 2014,her share of the partnership loss is $90,000.In 2015,her share of the partnership loss is $50,000.How much can Emily deduct in 2014 and 2015?

Correct Answer
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Although the passive loss rules do not a...
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Harry earned investment income of $18,500,incurred investment interest expense of $15,500,and other investment expenses of $9,000 during the current year.Harry may deduct $9,500 of investment interest expense this year and carry forward $6,000 to future years.

Correct Answer
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Kelly,who earns a yearly salary of $120,000,sold an activity with a suspended passive loss of $44,000.The activity was sold at a loss and Kelly has no other passive activities.The suspended loss is not deductible.

Correct Answer
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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?

Correct Answer
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Identify the types of income that are classified as investment income.Discuss the flexibility that a taxpayer has with respect to certain types of income that may potentially be considered investment income.

Correct Answer
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Investment income is gross income from i...
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Last year,Ted invested $100,000 for a 50% interest in a partnership in which he was a material participant.The partnership incurred a loss,and Ted's share was $150,000.Which of the following statements is incorrect?

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

Correct Answer
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True

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.

Correct Answer
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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.

Correct Answer
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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?

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

Correct Answer
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Match the treatment for the following types of transactions. -Treatment of a sale of a passive activity where all of the realized gain or loss is recognized currently.

Correct Answer
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Match the treatment for the following types of transactions. -Treatment of a disposition of a passive activity at death.

Correct Answer
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In 2014,Arnold invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Arnold's share.Which of the following statements is incorrect?

Correct Answer
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D

Correct Answer
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Kelly has $40,000 at risk at the end of ...
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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.

Correct Answer
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When a taxpayer disposes of a passive activity by gift,what happens to any unused passive losses?

Correct Answer
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In a disposition of a taxpayer...
View Answer

Exam 11: Investor Losses

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA closely held (non-personal service)C corporation can offset passive losses against active,but not portfolio income.Therefore,Orange's income is $285,000 [($300,000 active income - $50,000 passive loss)+ $35,000 portfolio income].

In 2014,Emily invests $120,000 in a limited partnership that is not a passive activity.During 2014,her share of the partnership loss is $90,000.In 2015,her share of the partnership loss is $50,000.How much can Emily deduct in 2014 and 2015?

Correct AnswerverifiedAlthough the passive loss rules do not a...View AnswerShow Answer

Harry earned investment income of $18,500,incurred investment interest expense of $15,500,and other investment expenses of $9,000 during the current year.Harry may deduct $9,500 of investment interest expense this year and carry forward $6,000 to future years.

Correct AnswerverifiedShow Answer

Kelly,who earns a yearly salary of $120,000,sold an activity with a suspended passive loss of $44,000.The activity was sold at a loss and Kelly has no other passive activities.The suspended loss is not deductible.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Identify the types of income that are classified as investment income.Discuss the flexibility that a taxpayer has with respect to certain types of income that may potentially be considered investment income.

Correct AnswerverifiedInvestment income is gross income from i...View AnswerShow Answer

Last year,Ted invested $100,000 for a 50% interest in a partnership in which he was a material participant.The partnership incurred a loss,and Ted's share was $150,000.Which of the following statements is incorrect?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedTrue

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.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Match the treatment for the following types of transactions. -Treatment of a sale of a passive activity where all of the realized gain or loss is recognized currently.

Correct AnswerverifiedShow Answer

Match the treatment for the following types of transactions. -Treatment of a disposition of a passive activity at death.

Correct AnswerverifiedShow Answer

In 2014,Arnold invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Arnold's share.Which of the following statements is incorrect?

Correct AnswerverifiedD

Correct AnswerverifiedKelly has $40,000 at risk at the end of ...View AnswerShow Answer

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.

Correct AnswerverifiedShow Answer

When a taxpayer disposes of a passive activity by gift,what happens to any unused passive losses?

Correct AnswerverifiedIn a disposition of a taxpayer...View AnswerShow Answer

Correct Answer
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Correct Answer
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A closely held (non-personal service)C corporation can offset passive losses against active,but not portfolio income.Therefore,Orange's income is $285,000 [($300,000 active income - $50,000 passive loss)+ $35,000 portfolio income].

Correct Answer
verified
Although the passive loss rules do not a...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Investment income is gross income from i...
View Answer

Correct Answer
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Correct Answer
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True

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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D

Correct Answer
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Kelly has $40,000 at risk at the end of ...
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Correct Answer
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Correct Answer
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In a disposition of a taxpayer...
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