Deck 11: Investor Losses

Question 1

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 can deduct the full amount.

Answer 1

False

Question 2

Coyote Corporation has active income of $45,000 and a passive loss of $23,000 in the current year.Coyote cannot deduct the $23,000 loss if it is a personal service corporation.

Answer 2

True

Question 3

From January through November, Vern participated for 420 hours as a salesman in a partnership in which he owns a 50% interest.The partnership has four full-time employees.During December, Vern spends 110 hours cleaning the store and painting the walls in order to meet the material participation standards.Vern qualifies as a material participant.

Answer 3

False

Question 4

In the current year, Rich has a $40,000 loss from a business he owns.His at-risk amount at the end of the year, prior to considering the current year loss, is $24,000.He will be allowed to deduct the $40,000 loss this year if he is a material participant in the business.

Question 5

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.

Question 6

Wolf Corporation has active income of $55,000 and a passive 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.

Question 7

Tonya owns an interest in an activity (not real estate) that converted recourse financing to nonrecourse financing.Recapture of previously allowed losses is required if Tonya's at-risk amount is reduced below zero as a result of the debt restructuring.

Question 8

In the current year, Louise invests $50,000 for a 10% 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.

Question 9

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

Question 10

Mary Jane participates for 100 hours during the year in an activity she owns. She has no employees and is the only participant in the activity. The activity is a significant participation activity.

Question 11

Gray Company, a closely held C corporation, 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 Gray is not a personal service corporation, it may deduct $34,000 of the passive loss.

Question 12

Rachel participates 150 hours in Activity A and 400 hours in Activity B, both of which are nonrental businesses.Both activities are passive.

Question 13

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

Question 14

David participates 580 hours in an activity during the year; others participate for 1,400 hours.David is a material participant in the activity.

Question 15

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 loss.

Question 16

Tom participates for 300 hours in Activity A and 250 hours in Activity B, both of which are nonrental businesses.Both activities are active.

Question 17

Joe participates 95 hours in an activity, while an employee participates 5 hours.Joe has materially participated in the activity.

Question 18

Jack owns a 10% interest in a partnership (not real estate) in which his at-risk amount is $42,000 at the beginning of the year.During the year, the partnership borrows $80,000 on a nonrecourse note and incurs a loss of $60,000 from operations.Jack's at-risk amount at the end of the year is $44,000.

Question 19

Linda owns investments that produce portfolio income and Activity A that produces losses.From a tax perspective, Linda will be better off if Activity A is not passive.

Question 20

Judy owns a 20% interest in a partnership (not real estate) in which her at-risk amount was $35,000 at the beginning of the year.The partnership borrowed $50,000 on a recourse note and made a $40,000 profit during the year.Her at-risk amount at the end of the year is $43,000.

Question 21

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

Question 22

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.

Question 23

Seth had interest 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, Seth may deduct a maximum of $11,000 investment interest.

Question 24

Eric makes an installment sale of a passive activity having suspended losses of $40,000.He collects 25% of the sales price in the current year, and will collect 25% in each of the next three years.Eric can deduct $10,000 of the passive loss this year.

Question 25

In 2012, Arnold invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Arnold's share.Which of the following statements is incorrect?

A)Since Arnold has only $80,000 of capital at risk, he cannot deduct any more than this amount against his other income.
B)Arnold's nondeductible loss of $20,000 can be carried over and used in future years (subject to the at-risk provisions).
C)If Arnold has taxable income of $40,000 from the partnership in 2013 and there are no other transactions that affect his at-risk amount, he can use all of the $20,000 loss carried over from 2012.
D)Arnold's $100,000 loss is nondeductible in 2012 and 2013 under the passive loss provisions.
E)All of the statements are correct.

Question 26

Gail exchanges passive Activity A, which has suspended losses of $15,000, for passive Activity B in a nontaxable exchange.The new owner of passive Activity A can offset the $15,000 suspended losses against passive income in the future.

Question 27

Roger owns and actively participates in the operations of an apartment building which produces a $40,000 loss during the year.He has AGI of $150,000 from an active business.He may deduct $25,000 of the loss.

Question 28

Chris receives a gift of a passive activity from his father whose basis was $60,000.Suspended losses related to the activity are $18,000.Chris will be allowed to offset the $18,000 suspended losses against future passive income.

Question 29

Harry earned investment income of $18,500, incurred investment interest expense of $15,500, and other investment expenses of $9,000 during the current year.Harry may deduct $9,500 of investment interest expense this year and carry forward $6,000 to future years.

Question 30

Bruce owns a small apartment building that produces a $25,000 loss during the year. His AGI before considering the rental loss is $85,000. Bruce must be an active participant with respect to the rental activity in order to deduct the $25,000 loss under the real estate rental exception.

Question 31

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, she can deduct $25,000 of the loss.

Question 32

Kathy is a full-time educator, but she owns an apartment building and devotes 550 hours to managing the activity. All losses from the rental activity will be considered nonpassive and deductible against active income because she is a real estate professional.

Question 33

Kim dies owning a passive activity with a basis of $75,000, a fair market value of $140,000, and suspended losses of $80,000.All of the $80,000 passive loss can be deducted on Kim's final income tax return.

Question 34

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.

Question 35

Joyce owns an activity (not real estate) in which she participates for 100 hours a year; her husband participates for 450 hours.Joyce qualifies as a material participant.

Question 36

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.

Question 37

In the current year, Kenny has a $35,000 loss from a real estate rental activity.Kenny provides 1,000 hours of service to that activity, which is more than half of his working hours for the year.Kenny can deduct the $35,000 loss.

Question 38

When determining whether an individual is a material participant, participation by an owner's spouse generally counts.

Question 39

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

Question 40

Bonnie owns and actively participates in the operations of an apartment building that produces a $40,000 loss during the year.In addition, she has AGI of $100,000 from an active business.Her at-risk amount in the apartment building is $200,000.She may deduct $25,000 of the loss in the current year, while the remaining $15,000 is a suspended passive loss.

Question 41

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: Which of the following answers is correct?

A)Only statement 1.
B)Only statement 2.
C)Both statements 1 and 2.
D)Neither statement 1 or 2.
E)None of the above.

Question 42

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.

A)Maria cannot deduct the $80,000 loss from the restaurant because she is not a material participant.
B)Maria can offset the $80,000 loss against the $150,000 of income from the retail store.
C)Maria will not be able to deduct any losses from the restaurant until she has been retired for at least three years.
D)Assuming Maria continues to hold the interest in the restaurant, she will always treat the losses as active.
E)None of the above.

Question 43

Paula owns four separate activities. She elects not to group them together as a single activity under the "appropriate economic unit" standard. Paula participates for 130 hours in Activity A, 115 hours in Activity B, 260 hours in Activity C, and 100 hours in Activity D. She has one employee, who works 125 hours in Activity D. Which of the following statements is correct?

A) Activities A, B, C, and D are all significant participation activities.
B) Paula is a material participant with respect to Activities A, B, C, and D.
C) Paula is not a material participant with respect to Activities A, B, C, and D.
D) Losses from all of the activities can be used to offset Paula's active income.
E) None of the above.

Question 44

Nora acquired passive activity A several years ago that until 2011 was profitable.However, the activity produced losses of $100,000 in 2011 and $50,000 in 2012.Nora had passive income from activity B of $40,000 in 2011 and $0 in 2012.How much loss is suspended from activity A in each year?

A)$60,000 in 2011 and $50,000 in 2012.
B)$100,000 in 2011 and $50,000 in 2012.
C)$0 in 2011 and $0 in 2012.
D)None of the above.

Question 45

In 2012, Pearl invests $80,000 for a 10% partnership interest in an activity in which she is a material participant.The partnership reports losses of $500,000 in 2012 and $450,000 in 2013.Pearl's share of the partnership's losses is $50,000 in 2012 and $45,000 in 2013.How much of the losses can Pearl deduct?

A)$50,000 in 2012 and $30,000 in 2013.
B)$50,000 in 2012 and $45,000 in 2013.
C)$0 in 2012 and $0 in 2013.
D)$50,000 in 2012 and $0 in 2013.
E)None of the above.

Question 46

Ned, a college professor, owns a separate business (not real estate) in which he participates in the current year.He has one employee who works part-time in the business.

A)If Ned participates for 120 hours and the employee participates for 120 hours during the year, Ned does not qualify as a material participant.
B)If Ned participates for 95 hours and the employee participates for 5 hours during the year, Ned probably does not qualify as material participant.
C)If Ned participates for 500 hours and the employee participates for 520 hours during the year, Ned qualifies as material participant.
D)If Ned participates for 600 hours and the employee participates for 2,000 hours during the year, Ned qualifies as a material participant.
E)None of the above.

Question 47

Last year, Ted invested $100,000 for a 50% interest in a partnership in which he was a material participant.The partnership incurred a loss, and Ted's share was $150,000.Which of the following statements is incorrect?

A)Ted's nondeductible loss of $50,000 can be carried over and used in the future (subject to the at-risk provisions).
B)If Ted has taxable income of $50,000 from the partnership in the current year and no other transactions that affect his at-risk amount, he can use all of the $50,000 loss carried over.
C)Since Ted has only $100,000 of capital at risk, he cannot deduct more than $100,000 against his other income.
D)None of the above is incorrect.

Question 48

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.

A)If Rick participates for 500 hours and the employee participates for 620 hours during the year, Rick qualifies as a material participant.
B)If Rick participates for 550 hours and the employee participates for 2,000 hours during the year, Rick qualifies as a material participant.
C)If Rick participates for 120 hours and the employee participates for 120 hours during the year, Rick does not qualify as a material participant.
D)If Rick participates for 95 hours and the employee participates for 5 hours during the year, Rick probably does not qualify as a material participant.
E)None of the above.

Question 49

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

A)The interdependencies between the activities.
B)The extent of common control.
C)The extent of common ownership.
D)The geographical location.
E)All of the above are relevant factors.

Question 50

In the current year, Spring Corporation, a closely held personal service corporation, has $120,000 of passive losses, $70,000 of active business income, and $50,000 of portfolio income.How much of the passive loss may Spring deduct in the current year?

A)$120,000.
B)$70,000.
C)$50,000.
D)$0.
E)None of the above.

Question 51

Alex has three passive activities with at-risk amounts in excess of $100,000 for each.During the year, the activities produced the following income (losses). Alex's suspended losses are as follows:

A) $75,000 is allocated to C; $0 to A and B. B. $37,500 is allocated to A; $37,500 to B.
C) $56,250 is allocated to A; $18,750 to B.
D) $25,000 is allocated to A, B, and C.
E) None of the above.

Question 52

Stan, a computer lab manager, earns a salary of $80,000 and receives $25,000 in dividends and interest during the year.In addition, he incurs a loss of $40,000 from an investment in a non-real estate passive activity.His at-risk amount in the activity at the beginning of the year is $55,000.What is Stan's adjusted gross income for this year?

A)$65,000.
B)$70,000.
C)$105,000.
D)None of the above.

Question 53

Charles owns a business with two separate departments. Department A produces $100,000 of income and Department B incurs a $60,000 loss. Charles participates for 550 hours in Department A and 100 hours in Department B. He has full-time employees in both departments.

A) If Charles elects to treat both departments as a single activity, he cannot offset the $60,000 loss against the $100,000 income.
B) Charles may not treat Department A and Department B as separate activities because they are parts of one business.
C) If Charles elects to treat the two departments as separate activities, he can offset the $60,000 loss against the $100,000 income.
D) If Charles elects to treat both departments as a single activity, he can offset the $60,000 loss against the $100,000 income.
E) None of the above.

Question 54

Ahmad owns four activities. He participated for 120 hours in Activity A, 150 hours in Activity B, 140 hours in Activity C, and 100 hours in Activity D. Which of the following statements is correct?

A) Activities A, B, C, and D are all significant participation activities.
B) Activities A, B, and C are significant participation activities.
C) Ahmad is a material participant with respect to Activities A, B, and C.
D) Ahmad is a material participant with respect to Activities A, B, C, and D.
E) None of the above.

Question 55

Art owns significant interests in a hardware store and a bookstore at a mall in Washington, D.C. He also owns a hardware store and a bookstore at a mall in San Francisco. Which of the following is not a way in which the interests may be grouped?

A) One activity.
B) A hardware activity and a bookstore activity.
C) A Washington, D.C. activity and a San Francisco activity.
D) Four separate activities.
E) Any of the above may be the basis for grouping.

Question 56

In 2012, Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity. The partnership reported losses of $200,000 in 2012 and $100,000 in 2013, Kipp's share being $60,000 in 2012 and $30,000 in 2013. How much of the losses from the partnership can Kipp deduct assuming he owns no other investments and does not participate in the partnership's operations?

A)$0 in 2012; $30,000 in 2013.
B)$60,000 in 2012; $30,000 in 2013.
C)$60,000 in 2012; $5,000 in 2013.
D)$60,000 in 2012; $0 in 2013.
E)None of the above.

Question 57

Samantha sells a passive activity (adjusted basis of $50,000) for $90,000.Suspended losses attributable to this property total $30,000.The realized gain and the taxable gain are:

A)$40,000 realized gain; $70,000 taxable gain.
B)$10,000 realized gain; $10,000 taxable gain.
C)$40,000 realized gain; $0 taxable gain.
D)$40,000 realized gain; $10,000 taxable gain.
E)None of the above.

Question 58

Tara owns a shoe store and a bookstore.Both businesses are operated in a mall.She also owns a restaurant across the street and a jewelry store several blocks away.

A)All four businesses can be treated as a single activity if Tara elects to do so.
B)Only the shoe store and bookstore can be treated as a single activity, the restaurant must be treated as a separate activity, and the jewelry store must be treated as a separate activity.
C)The shoe store, bookstore, and restaurant can be treated as a single activity, and the jewelry store must be treated as a separate activity.
D)All four businesses must be treated as separate activities.
E)None of the above.

Question 59

Which of the following factors should be considered in determining whether an activity is treated as an appropriate economic unit?

A)The similarities and differences in types of business.
B)The extent of common control.
C)The extent of common ownership.
D)The geographic location.
E)All of the above.

Question 60

Dena owns interests in five businesses and has full-time employees in each business. She participates for 100 hours in Activity A, 120 hours in Activity B, 130 hours in Activity C, 140 hours in Activity D, and 125 hours in Activity E.

A) All five of Dena's activities are significant participation activities.
B) Dena is a material participant with respect to all five activities.
C) Dena is not a material participant in any of the activities.
D) Dena is a material participant with respect to Activities B, C, D, and E.
E) None of the above.

Question 61

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 income in the current or prior years, her suspended passive loss from the activity is:

A)$90,000 from last year and $50,000 from the current year.
B)$100,000 from last year and $50,000 from the current year.
C)$0 from last year and $0 from the current year.
D)$50,000 from the current year.
E)None of the above.

Question 62

Roxanne, who is single, has $125,000 of salary, $10,000 of income from a limited partnership, and a $26,000 passive loss from a real estate rental activity in which she actively participates.Her modified adjusted gross income is $125,000.Of the $26,000 loss, how much is deductible?

A)$0.
B)$10,000.
C)$25,000.
D)$26,000.
E)None of the above.

Question 63

Consider the following three statements: In which of the three cases above could the rental activity automatically be considered a passive activity?

A)Case 1 only.
B)Case 2 only.
C)Case 3 only.
D)Cases 1, 2, and 3.
E)None of the above.

Question 64

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.

A)Disposition of a passive activity by gift.
B)Nontaxable exchange of a passive activity.
C)Disposition of a passive activity at death.
D)Installment sale of a passive activity.
E)None of the above.

Question 65

Jon owns an apartment building in which he is a material participant and a computer consulting business.Of the 2,000 hours he spends on these activities during the year, 55% of the time is spent operating the apartment building and 45% of the time is spent in the computer consulting business.

A)The computer consulting business is a passive activity but the apartment building is not.
B)The apartment building is a passive activity but the computer consulting business is not.
C)Both the apartment building and the computer consulting business are passive activities.
D)Neither the apartment building nor the computer consulting business is a passive activity.
E)None of the above.

Question 66

Judy incurred $58,500 of interest expense this year related to her investments.Her investment income includes $15,000 of interest, $9,000 of qualified dividends, and a $22,500 net capital gain on the sale of securities.The maximum amount of Judy's investment interest expense deduction for the year is:

A)$15,000.
B)$24,000.
C)$37,500.
D)$46,500.
E)None of the above.

Question 67

Sarah purchased for $100,000 a 10% interest in a business venture that is not subject to the passive activity rules.During the first year, her share of the entity's loss was $120,000.At the beginning of the second year, the entity obtained $800,000 of recourse financing.During the second year, Sarah withdrew cash of $20,000, and her share of the entity's loss was $25,000.Calculate the amount of loss that Sarah may claim in each of the two years and determine her at-risk amount at the end of each year.

Question 68

Art's at-risk amount in a passive activity was $60,000 at the beginning of 2011.His loss from the activity in 2011 is $80,000, and he had no passive activity income during the year. Art had $20,000 of passive income from the activity in 2012.Under the passive loss rules, Art's suspended loss at the end of 2012 is:

A)$15,000.
B)$20,000.
C)$45,000.
D)$60,000.
E)None of the above.

Question 69

Sarah, who owns a 50% interest in a grocery store, was a material participant in the activity for the last 25 years.She retired from the grocery 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 grocery store resulted in a loss for the current year and Sarah's share of the loss is $40,000.Sarah's share of the income from the office supply store is $75,000.She does not own interests in any other activities.

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

Question 70

Tony is married and files a joint tax return for 2012. He has investment interest expense of $95,000 for a loan made to him in 2012 to purchase a parcel of unimproved land. His income from investments [dividends (not qualified) and interest] totaled $18,000. Tony paid $3,600 of real estate taxes on the unimproved land. Tony also has a $4,500 net long-term capital gain from the sale of stock held as an investment. Calculate Tony's maximum investment interest deduction for 2012.

A)$95,000.
B)$22,500.
C)$18,900.
D)$18,000.
E)None of the above.

Question 71

Pablo, who is single, has $95,000 of salary, $10,000 of income from a limited partnership, and a $27,000 passive loss from a real estate rental activity in which he actively participates.His modified adjusted gross income is $95,000.Of the $27,000 loss, how much is deductible?

A)$0.
B)$10,000.
C)$25,000.
D)$27,000.
E)None of the above.

Question 72

Caroyl made a gift to Tim of a passive activity (adjusted basis of $50,000, suspended losses of $20,000, and a fair market value of $80,000).No gift tax resulted from the transfer.

A)Tim's adjusted basis is $80,000, and Tim can deduct the $20,000 of suspended losses in the future.
B)Tim's adjusted basis is $80,000.
C)Tim's adjusted basis is $50,000, and the suspended losses are lost.
D)Tim's adjusted basis is $50,000, and Tim can deduct the $20,000 of suspended losses in the future.
E)None of the above.

Question 73

Lucy dies owning a passive activity with an adjusted basis of $90,000.Its fair market value at that date is $145,000.Suspended losses relating to the property were $75,000.Which of the following statements is true?

A)The heir's adjusted basis is $145,000, and Lucy's final deduction is $20,000.
B)The heir's adjusted basis is $145,000, and Lucy's final deduction is $75,000.
C)The heir's adjusted basis is $90,000, and Lucy's final deduction is $75,000.
D)The heir's adjusted basis is $220,000, and Lucy has no final deduction.
E)None of the above.

Question 74

Jed spends 32 hours a week, 50 weeks a year, operating a DVD rental store that he owns.He also owns a music store in another city that is operated by a full-time employee.He elects not to group them together as a single activity under the "appropriate economic unit" standard.Jed spends 40 hours per year working at the music store.

A)Neither store is a passive activity.
B)Both stores are passive activities.
C)Only the DVD rental store is a passive activity.
D)Only the music store is a passive activity.
E)None of the above.

Question 75

Emily earns a salary of $150,000, and invests $60,000 for a 20% interest in a passive activity. Operations of the activity result in a loss of $400,000, of which Emily's share is $80,000. How is her loss characterized?

A)$60,000 is suspended under the passive loss rules and $20,000 is suspended under the at-risk rules.
B)$60,000 is suspended under the at-risk rules and $20,000 is suspended under the passive loss rules.
C)$80,000 is suspended under the passive loss rules.
D)$80,000 is suspended under the at-risk rules.
E)None of the above.

Question 76

Jenny spends 32 hours a week, 50 weeks a year, operating a DVD rental store that she owns.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.

A)Neither store is a passive activity.
B)Both stores are passive activities.
C)Only the DVD rental store is a passive activity.
D)Only the music store is a passive activity.
E)None of the above.

Question 77

Vic's at-risk amount in a passive activity is $200,000 at the beginning of the current year.His current loss from the activity is $80,000.Vic had no passive activity income during the year.At the end of the current year:

A)Vic has an at-risk amount in the activity of $120,000 and a suspended passive loss of $80,000.
B)Vic has an at-risk amount in the activity of $200,000 and a suspended passive loss of $80,000.
C)Vic has an at-risk amount in the activity of $120,000 and no suspended passive loss.
D)Vic has an at-risk amount in the activity of $200,000 and no suspended passive loss.
E)None of the above.

Question 78

Skeeter invests in vacant land for the purpose of realizing a profit on its appreciation.He leases the land during the period he holds it.The unadjusted basis of the property is $75,000 and its fair market value is $105,000.The lease payments are $1,200 per year.

A)The leasing activity will be treated as a rental activity and will be treated as a passive activity regardless of how many hours Skeeter participates.
B)The leasing activity will be treated as a rental activity and will not be treated as a passive activity if Skeeter qualifies as a real estate professional.
C)The leasing activity will not be treated as a rental activity.
D)The leasing activity will be treated as a rental activity and will not be treated as a passive activity if Skeeter devotes more than 500 hours to the activity.
E)None of the above.

Question 79

Kenton 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 $110,000 in the current year.At the beginning of this year, Kenton's at-risk amounts in Activities A and B are $10,000 and $120,000, respectively.What is the amount of Kenton's suspended passive loss with respect to these activities at the end of the current year?

A)$100,000.
B)$50,000.
C)$40,000.
D)$0.
E)None of the above.

Question 80

Wes's at-risk amount in a passive activity is $25,000 at the beginning of the current year.His current loss from the activity is $35,000 and he has no passive activity income.At the end of the current year, which of the following statements is incorrect?

A)Wes has a loss of $25,000 suspended under the passive loss rules.
B)Wes has an at-risk amount in the activity of $0.
C)Wes has a loss of $10,000 suspended under the at-risk rules.
D)Wes has a loss of $35,000 suspended under the passive loss rules.
E)None of the above is incorrect.