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Exam 11: Investor Losses

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Question 61

True/False

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A qualified real estate professional is allowed to treat income or loss from any real estate venture as active except for income or loss from a rental activity.

A) True
B) False

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Question 62

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In 2018, Liam invested $100,000 for a 25% interest in a partnership involved in an activity in which he is a material participant. The partnership reported losses of $340,000 in 2018 and $180,000 in 2019 with Liam's share being $85,000 in 2018 and $45,000 in 2019. How much of the losses can Liam deduct?

A) $0 in 2018, $0 in 2019.
B) $85,000 in 2018, $0 in 2019.
C) $85,000 in 2018, $15,000 in 2019.
D) $85,000 in 2018, $45,000 in 2019.
E) None of the above.

F) None of the above
G) A) and D)

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Question 63

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List the taxpayers that are subject to the passive activity loss rules and summarize the general impact of these rules on these taxpayers.

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

Sandra acquired a passive activity three years ago. Until last year, the activity was profitable and her at-risk amount was $300,000. Last year, the activity produced a loss of $100,000, and in the current year, the loss is $50,000. Assuming Sandra has received no passive activity income in the current or prior years, her suspended passive activity loss from the activity is:

Ramon incurred $83,100 of interest expense related to his investments this year. His investment income included $34,500 of interest and a $37,500 net capital gain on the sale of securities. Ramon has asked you to compute the amount of his deduction for investment interest, taking into consideration any options he might have. What is the maximum amount of Ramon's investment interest expense deduction in the current year?

Individuals with modified AGI of $100,000 can deduct against active or portfolio income losses of up to $25,000 from real estate rental activities in which they actively participate.

Stuart is the sole owner and a material participant in a business in which he has $50,000 at risk. If the business incurs a loss of $80,000 from operations, Stuart will be allowed the full amount as a deduction.

What special passive activity loss treatment is available to real estate activities?

Hugh has four passive activities which generate the following income and losses in the current year. How much of the $80,000 net passive activity loss can Hugh deduct this year? Calculate the suspended losses (by activity).

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?

Anne sells a rental house for $100,000 (adjusted basis of $55,000). During her ownership, $60,000 of losses have been suspended under the passive activity loss rules. Determine the tax treatment to Anne on the disposition of the property.

Tess owns a building in which she rents apartments to tenants and operates a restaurant. Which of the following statements is incorrect?

Joyce, an architect, earns $100,000 from her practice in the current year. In addition, she receives $35,000 in dividends, capital gains, and annuity income during the year. Further, she incurs a loss of $35,000 from an investment in a passive activity. Joyce's AGI for the year after considering the passive investment is $100,000.

Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a limited partnership, and a $26,000 passive activity loss from a real estate rental activity in which she actively participates. If her modified adjusted gross income is $155,000, how much of the $26,000 loss is deductible?

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.

Josh 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 $100,000 in the current year. At the beginning of this year, Josh's at-risk amounts in Activities A and B are $10,000 and $100,000, respectively. What is the amount of Josh's suspended passive activity loss with respect to these activities at the end of the current year?

In the current year, Louise invests $50,000 for a 20% interest in a passive activity. Her share of the loss this year is $10,000. If this is her only passive activity, the $10,000 loss from the activity this year is suspended for use in a future year.

In the current year, Lucile, who is single and has AGI of $90,000 before considering rental activities, is active in three separate real estate rental activities and is in the 22% tax bracket. She had $15,000 of losses from Activity A, $25,000 of losses from Activity B, and income of $20,000 from Activity C. She also had $3,100 of tax credits from Activity a. Calculate her deductions and credits currently allowed and the suspended losses and credits.

Green Corporation earns active income of $50,000 and receives $40,000 in dividends during the year. In addition, Green incurs a loss of $70,000 from an investment in a passive activity acquired several years ago. Consider the following two statements: (1) Green's current deduction for passive activity losses is $50,000 if it is a closely held C corporation that is not a personal service corporation. (2) Green's current deduction for passive activity losses is $0 if it is a personal service corporation. Which of the following answers is correct?