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Exam 11: Investor Losses

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Question 41

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Stan,a computer lab manager,earns a salary of $80,000 and receives $25,000 in dividends and interest during the year.In addition,he incurs a loss of $40,000 from an investment in a non-real estate passive activity.His at-risk amount in the activity at the beginning of the year is $55,000.What is Stan's adjusted gross income for this year?

A) $65,000.
B) $70,000.
C) $105,000.
D) None of the above.

E) A) and B)
F) C) and D)

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Question 42

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

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A transfer of a taxpayer's interest in a...

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Question 43

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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:

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.

Vail owns interests in a beauty salon,a natural foods store,and a tanning salon.Several full-time employees work at each of the enterprises.As of the end of November of the current year,Vail has worked 180 hours in the beauty salon,220 hours at the natural foods store,and 80 hours at the tanning salon.These three ventures collectively will produce income.Vail also owns one other passive activity that is producing a loss (a limited partnership in which she has reported no participation).How should Vail plan her activities for the remainder of the year?

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

Anita owns Activity A which produces active income and Activity B which produces losses.From a tax planning perspective,Anita will be better off if Activity B is a passive activity.

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.

In 2012,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?

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?

In 2012,Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity.The partnership reported losses of $200,000 in 2012 and $100,000 in 2013,Kipp's share being $60,000 in 2012 and $30,000 in 2013.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?

Bruce owns a small apartment building that produces a $25,000 loss during the year.His AGI before considering the rental loss is $85,000.Bruce must be an active participant with respect to the rental activity in order to deduct the $25,000 loss under the real estate rental exception.

Jackson Company incurs a $50,000 loss on a passive activity during the year.The company has active income of $34,000 and portfolio income of $24,000.If Jackson is a personal service corporation,it may deduct $34,000 of the passive loss.

Last year,Wanda gave her daughter a passive activity (adjusted basis of $80,000; fair market value of $160,000)with suspended losses of $20,000.In the current year,her daughter realizes income of $10,000 from the activity.What are the tax effects to Wanda and her daughter?

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.

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.

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?

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.

Tony is married and files a joint tax return for 2012.He has investment interest expense of $95,000 for a loan made to him in 2012 to purchase a parcel of unimproved land.His income from investments [dividends (not qualified) and interest] totaled $18,000.Tony paid $3,600 of real estate taxes on the unimproved land.Tony also has a $4,500 net long-term capital gain from the sale of stock held as an investment.Calculate Tony's maximum investment interest deduction for 2012.

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.