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Exam 11: Investor Losses

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Question 31

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When Kate died, she owned a passive activity with an adjusted basis of $100,000.Its fair market value at that date is $130,000.Suspended losses relating to the property were $45,000.

A) The heir's adjusted basis is $130,000, and Kate's final deduction is $15,000.
B) The heir's adjusted basis is $130,000, and Kate's final deduction is $45,000.
C) The heir's adjusted basis is $100,000, and Kate's final deduction is $45,000.
D) The heir's adjusted basis is $175,000, and Kate has no final deduction.
E) None of these applies here.

F) C) and E)
G) C) and D)

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Question 32

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During the current year, David earned investment income of $20,000.In addition, he incurred investment interest expense of $12,000 and other investment expenses of $9,000.David can deduct $12,000 of investment interest expense for this year.

A) True
B) False

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Question 33

Multiple Choice

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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?

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.

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?

Jenny spends 32 hours a week, 50 weeks a year, operating a bicycle rental store that she owns at a resort community.She also owns a music store in another city that is operated by a full-time employee.Jenny spends 140 hours per year working at the music store.She elects not to group them together as a single activity under the "appropriate economic unit" standard.

Lew owns five activities, and he elects not to group them together as a single activity under the "appropriate economic unit" standard.During the year, he participates for 120 hours in Activity A, 150 hours in Activity B, 140 hours in Activity C, 110 hours in Activity D, and 100 hours in Activity E.Which of the following statements is correct?

Which of the following is not a factor that should be considered in determining whether an activity is treated as an appropriate economic unit?

Investment income can include gross income from interest, dividends, annuities, and royalties not derived in the ordinary course of a trade or business; income from a passive activity; and income from a real estate activity in which the taxpayer actively participates.

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?

Identify from the following list the type of disposition of a passive activity where the taxpayer keeps the suspended losses of the disposed activity and utilizes them on a subsequent taxable disposition.

Wolf Corporation has active income of $55,000 and a passive activity loss of $33,000 in the current year.Wolf cannot deduct the $33,000 loss if it is a closely held C corporation that is not a personal service corporation.

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.

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 activity loss.

Match the treatment for the following types of transactions. -Treatment of an installment sale of a passive activity.

Match the term with the correct response.More than one response may be correct. -Active participation.

In the current year, Kelly had a $35,000 loss from a real estate rental activity in which she is a 10% owner.If she is an active participant and if her modified AGI is $100,000 or less, she can deduct $25,000 of the loss.

This year Seth had investment royalty income of $31,000, investment expenses of $28,000, and a long-term capital gain of $8,000 on an investment.In calculating his net investment income for the current year, Seth may deduct a maximum of $11,000 of investment interest.

Art's at-risk amount in a passive activity was $60,000 at the beginning of 2018.His loss from the activity in 2018 is $80,000, and he had no passive activity income during the year.Art had $20,000 of passive activity income from the activity in 2019.Under the passive activity loss rules, Art's suspended loss at the end of 2019 is:

Maria, who owns a 50% interest in a restaurant, has been a material participant in the restaurant activity for the last 20 years.She retired from the restaurant at the end of last year and will not participate in the restaurant activity in the future.However, she continues to be a material participant in a retail store in which she is a 50% partner.The restaurant operations produce a loss for the current year, and Maria's share of the loss is $80,000.Her share of the income from the retail store is $150,000.She does not own interests in any other activities.