Question 1

During the current year, Ryan performs personal services as follows: 700 hours in his management consulting practice, 650 hours in a real estate development business, and 550 hours in an apartment leasing operation. He expects that losses will be realized from the two real estate ventures while his consulting practice will show a profit. Ryan files a joint return with his wife whose salary is $125,000. Discuss the character and treatment of the income and losses generated by these activities.

Accepted Answer

The answer of During the current year, Ryan performs personal...

Question 2

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

Accepted Answer

The answer of Hugh has four passive activities which generate...

Question 3

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

Accepted Answer

The answer of What special passive loss treatment is available...

Question 4

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.

Accepted Answer

The answer of Anne sells a rental house for $100,000...

Question 5

Describe the types of activities and taxpayers that are subject to the at-risk rules.

Accepted Answer

The answer of Describe the types of activities and taxpayers...

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 answer of List the taxpayers that are subject to...

Question 7

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

Accepted Answer

The answer of Identify how the passive loss rules broadly...

Question 8

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

The answer of Identify the types of income that are...

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:
 $\begin{array}{lc}
&\text { Income (Loss) }\
\text { Tampa ice cream parlor (95 hours participation) } & \$ 56,000 \
\text { Tampa car repair shop (140 hours participation) } & (89,000) \
\text { Portland ice cream parlor ( } 90 \text { hours participation) } & 34,000 \
\text { Portland car repair shop (170 hours participation) } & (41,000) \
\text { St. Louis car repair shop (180 hours participation) } & (15,000)
\end{array}$
 
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 answer of Lloyd, a life insurance salesman, earns a...

Question 10

Discuss the treatment given to suspended passive activity losses and credits. What happens to an activity's unused losses and credits when the activity is sold?

Accepted Answer

The answer of Discuss the treatment given to suspended passive...

Question 11

Ken has a $40,000 loss from an investment in a partnership in which he does not materially participate. He paid $30,000 for his interest. How much of the loss is disallowed by the at-risk rules? How much is disallowed by the passive loss rules?

Accepted Answer

The answer of Ken has a $40,000 loss from an...

Question 12

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

Accepted Answer

The answer of Describe the general rules that limit the...

Question 13

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

Accepted Answer

The answer of Match the term with the correct response....

Question 14

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

The answer of Orange Corporation, a closely held (non-personal service)...

Question 15

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?

Accepted Answer

The answer of Last year, Wanda gave her daughter a...

Question 16

In the current year, Lucile, who has AGI of $70,000 before considering rental activities, is active in three separate real estate rental activities and is in the 28% 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.

Accepted Answer

The answer of In the current year, Lucile, who has...

Question 17

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

Accepted Answer

The answer of When a taxpayer disposes of a passive...

Question 18

Purple Corporation, a personal service corporation, earns active income of $600,000. The corporation receives $60,000 in dividends and incurs a loss of $100,000 from an investment in a passive activity acquired three years ago. What is Purple's income after considering the passive investment?

Accepted Answer

The answer of Purple Corporation, a personal service corporation, earns...

Question 19

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?

Accepted Answer

The answer of Vail owns interests in a beauty salon,...

Question 20

Pat sells a passive activity for $100,000 that has an adjusted basis of $55,000. During the years of her ownership, $60,000 of losses have been incurred that were suspended under the passive activity loss rules. In addition, the passive activity generated tax credits of $10,000 that were not utilized and suspended. Determine the tax treatment to Pat on the disposition of the property.

Accepted Answer

The answer of Pat sells a passive activity for $100,000...

Quiz 11: Investor Losses