Question 1

Joyce, an attorney, earns $100,000 from her law practice in the current year.In addition, she receives $35,000 in dividends and interest during the year.Further, she incurs a loss of $35,000 from an investment in a passive activity.What is Joyce's AGI for the year after considering the passive investment?

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Question 2

In 2012, Emily invests $100,000 in a limited partnership that is not a passive activity.During 2012, her share of the partnership loss is $70,000.In 2013, her share of the partnership loss is $50,000.How much can Emily deduct in 2012 and 2013?

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Question 3

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

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Question 4

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

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Question 5

Sam, who earns a salary of $400,000, invested $160,000 for a 40% working interest in an oil and gas limited partnership (not a passive activity) last year.Through the use of $1,600,000 of nonrecourse financing, the partnership acquired assets worth $2 million.Depreciation, interest, and other deductions related to the activity resulted in a loss in the partnership's initial year of $300,000, of which Sam's share was $120,000.Sam's share of loss from the partnership is $60,000 in the current year.How much of the loss from the partnership can Sam deduct in each year?

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Question 6

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.

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Question 7

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?

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Question 8

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.

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Question 9

Marcia borrowed $110,000 to acquire a parcel of land to be held for investment purposes and paid interest of $9,000 on the loan. Other items related to Marcia's investments include the following:
  Marcia is unmarried, has AGI of $65,000, and elects to itemize her deductions.She has no miscellaneous itemized deductions other than the investment counsel fees.

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Question 10

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?

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Question 11

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
A.Calculate her deductions and credits currently allowed and the suspended losses and credits.
C.She also had $3,100 of tax credits from Activity

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

Question 12

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?

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Question 13

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

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Question 14

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?

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Question 15

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?

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Question 16

Green, Inc., a closely held personal service corporation, has the following transactions in the current year: $100,000 of passive losses, $80,000 of active business income, and $20,000 of portfolio income.How much of the passive loss may Green use to offset other types of income this year?

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Question 17

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

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Question 18

During the year, James performs the following personal services in three separate activities: 800 hours as a CPA in his tax practice, 400 hours in a real estate development business (in which he is not a material participant), and 600 hours in an apartment leasing operation.He expects that losses will be realized from the two real estate ventures while his tax practice will show a profit.James files a joint return with his wife whose salary is $200,000.What is the character of the income and losses generated by these activities?

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Question 19

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 full-time 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?

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Question 20

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

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Quiz 11: Investor Losses