Question 1

Leigh,who owns a 50% interest in a sporting goods store,was a material participant in the activity for the last fifteen years.She retired from the sporting goods store at the end of last year and will not participate in the activity in the future.However,she continues to be a material participant in an office supply store in which she is a 50% partner.The operations of the sporting goods store resulted in a loss for the current year and Leigh's share of the loss is $40,000.Leigh's share of the income from the office supply store is $75,000.She does not own interests in any other activities.

Accepted Answer

A)  Leigh cannot deduct the $40,000 loss from the sporting goods store because she is not a material participant.
B)  Leigh can offset the $40,000 loss from the sporting goods store against the $75,000 of income from the office supply store.
C)  Leigh will not be able to deduct any losses from the sporting goods store until future years.
D)  Leigh will not be able to deduct any losses from the sporting goods store until she has been retired for at least four years.
E)  None of these.F) A) and D)
G) B) and C)

Question 2

All of a taxpayer's tax credits relating to a passive activity can be utilized when the activity is sold at a loss.

Accepted Answer

A) True 
 B)False

Question 3

Tom participates for 100 hours in Activity A and 450 hours in Activity B,both of which are nonrental businesses.Both activities are active.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)  Taxpayer devotes time aggregating more than 500 hours in all significant participation activities during the year.
B)  Participates in making management decisions in a significant and bona fide sense.
C)  One in which the individual's participation equals more than 100 hours during the year.
D)  Taxpayer devotes time in the activity which constitutes substantially all of the participation in the activity of all individuals.
E)  Both options a.and d.are correct.F) No correct choice is given.G) B) and E)
H) A) and E)

Question 5

In 2014,Joanne invested $90,000 for a 20% interest in a limited liability company (LLC) in which she is a material participant.The LLC reported losses of $340,000 in 2014 and $180,000 in 2015.Joanne's share of the LLC's losses was $68,000 in 2014 and $36,000 in 2015.How much of these losses can Joanne deduct?

Accepted Answer

A)  $68,000 in 2014;$36,000 in 2015.
B)  $68,000 in 2014;$22,000 in 2015.
C)  $0 in 2014;$0 in 2015.
D)  $68,000 in 2014;$0 in 2015.
E)  None of these.F) A) and C)
G) All of the above

Question 6

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

Accepted Answer

The passive loss rules apply to individu...

Question 7

Hugh has four passive activities which generate the following income and losses in the current year.
 $\begin{array}{cr}\text { Activity } & \text { Gain (Loss) }\
\mathrm{A} & (\$ 60,000) \
\mathrm{B} & (20,000) \
\mathrm{C} & (10,000) \
\mathrm{D} & {10,000}\
\text { Total } &{(\$ 80,000)} 
\end{array}$ How much of the $80,000 net passive loss can Hugh deduct this year? Calculate the suspended losses (by activity).

Accepted Answer

None.The suspended losses of $...

Question 8

Identify from the list below 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.

Accepted Answer

A)  Disposition of a passive activity by gift.
B)  Disposition of a passive activity at death.
C)  Installment sale of a passive activity.
D)  All of these.
E)  None of these.F) A) and B)
G) A) and C)

Question 9

Lloyd,a life insurance salesman,earns a $400,000 salary in the current year.As he works only 30 hours per week in this job,he has time to participate in several other businesses.He owns an ice cream parlor and a car repair shop in Tampa.He also owns an ice cream parlor and a car repair shop in Portland and a car repair shop in St.Louis.A preliminary analysis on December 1 of the current year shows projected income and losses for the various businesses as follows:
  Lloyd has full­time employees at each of the five businesses listed above.Review all possible groupings for Lloyd's activities.Which grouping method and other strategies should Lloyd consider that will provide the greatest tax advantage?

Accepted Answer

The basic issue relates to how the car r...

Question 10

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.

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A)  If 60% of Tess's gross income is from apartment rentals and 40% is from the restaurant,the rental operation and the restaurant business must be treated as separate activities.
B)  If 95% of Tess's gross income is from apartment rentals and 5% is from the restaurant,she may treat the rental operation and the restaurant business as a single activity that is a rental activity.
C)  If 5% of Tess's gross income is from apartment rentals and 95% is from the restaurant,she may treat the rental operation and the restaurant business as a single activity that is not a rental activity.
D)  If 98% of Tess's gross income is from apartment rentals and 2% is from the restaurant,the rental operation and the restaurant business must be treated as a single activity that is not a rental activity.
E)  None of these.F) A) and E)
G) B) and D)

Question 12

Match the treatment for the following types of transactions.
-Treatment of suspended credits when passive activity is sold at a loss.

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 D)
H) A) and E)

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

Wayne owns a small apartment building that produces a $45,000 loss during the year.His AGI before considering the rental loss is $85,000.Because Wayne is an active participant with respect to the rental activity,he may deduct the $45,000 loss.

Accepted Answer

A) True 
 B)False

Question 15

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.

Accepted Answer

A) True 
 B)False

Question 16

Describe the general rules that limit the deduction of investment interest expense.

Accepted Answer

The deduction of investment interest exp...

Question 17

During the current year,Ethan performs personal services as follows: 800 hours in his information technology consulting practice,625 hours in a real estate development business,and 510 hours in a condominium leasing operation.He expects that losses will be realized from the two real estate ventures while his consulting practice will show a profit.Ethan files a joint return with his wife whose salary is $125,000.The income and losses from the following ventures is considered active and not subject to the passive loss limitations:

Accepted Answer

A)  Only the information technology consulting practice.
B)  Only the information technology consulting practice and the real estate development business.
C)  Only the information technology consulting practice and the condominium leasing operation.
D)  All three of the ventures are considered active and not subject to the passive loss limitations.
E)  None of these.F) A) and D)
G) B) and D)

Question 18

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

Accepted Answer

The passive loss rules require income an...

Question 19

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

Accepted Answer

A)  Taxpayer devotes time aggregating more than 500 hours in all significant participation activities during the year.
B)  Participates in making management decisions in a significant and bona fide sense.
C)  One in which the individual's participation equals more than 100 hours during the year.
D)  Taxpayer devotes time in the activity which constitutes substantially all of the participation in the activity of all individuals.
E)  Both options a.and d.are correct.F) No correct choice is given.G) A) and B)
H) B) and D)

Question 20

Kate dies owning 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.

Accepted Answer

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.F) A) and B)
G) None of the above

Exam 11: Investor Losses

Correct Answer
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Nathan owns Activity A,which produces income,and Activity B,which produces passive losses.From a tax planning perspective,Nathan will be better off if Activity A is passive.

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

Correct Answer
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Correct Answer
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Match the treatment for the following types of transactions. -Treatment of suspended credits when passive activity is sold at a loss.

Correct Answer
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Match the term with the correct response.More than one response may be correct. -Material participation.

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

Correct Answer
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The passive loss rules require income an...
View Answer

Wayne owns a small apartment building that produces a $45,000 loss during the year.His AGI before considering the rental loss is $85,000.Because Wayne is an active participant with respect to the rental activity,he may deduct the $45,000 loss.

Correct Answer
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Identify from the list below 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.

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

Correct Answer
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Kate dies owning 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.

Correct Answer
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Correct Answer
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Describe the general rules that limit the deduction of investment interest expense.

Correct Answer
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The deduction of investment interest exp...
View Answer

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.

Correct Answer
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Tom participates for 100 hours in Activity A and 450 hours in Activity B,both of which are nonrental businesses.Both activities are active.

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

Correct Answer
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The passive loss rules apply to individu...
View Answer

Correct Answer
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The basic issue relates to how the car r...
View Answer

All of a taxpayer's tax credits relating to a passive activity can be utilized when the activity is sold at a loss.

Correct Answer
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Correct Answer
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None.The suspended losses of $...
View Answer

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.

Correct Answer
verified

Exam 11: Investor Losses

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Match the treatment for the following types of transactions. -Treatment of suspended credits when passive activity is sold at a loss.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedThe passive loss rules require income an...View AnswerShow Answer

Wayne owns a small apartment building that produces a $45,000 loss during the year.His AGI before considering the rental loss is $85,000.Because Wayne is an active participant with respect to the rental activity,he may deduct the $45,000 loss.

Correct AnswerverifiedShow Answer

Identify from the list below 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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Kate dies owning 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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Describe the general rules that limit the deduction of investment interest expense.

Correct AnswerverifiedThe deduction of investment interest exp...View AnswerShow Answer

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.

Correct AnswerverifiedShow Answer

Tom participates for 100 hours in Activity A and 450 hours in Activity B,both of which are nonrental businesses.Both activities are active.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedThe passive loss rules apply to individu...View AnswerShow Answer

Correct AnswerverifiedThe basic issue relates to how the car r...View AnswerShow Answer

All of a taxpayer's tax credits relating to a passive activity can be utilized when the activity is sold at a loss.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedNone.The suspended losses of $...View AnswerShow Answer

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.

Correct AnswerverifiedShow 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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Correct Answer
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Correct Answer
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Correct Answer
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The passive loss rules require income an...
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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Correct Answer
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Correct Answer
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The deduction of investment interest exp...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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The passive loss rules apply to individu...
View Answer

Correct Answer
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The basic issue relates to how the car r...
View Answer

Correct Answer
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Correct Answer
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None.The suspended losses of $...
View Answer

Correct Answer
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