Question 1

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 2

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 3

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 4

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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Question 5

Tangerine Corporation,a closely held (non-personal service)C corporation,earns active income of $400,000 in the current year.The corporation also receives $35,000 in dividends during the year.In addition,Tangerine incurs a loss of $60,000 from an investment in a passive activity.What is Tangerine's income for the year after considering the passive investment?

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Question 6

Caroline sells a rental house for $320,000 that has an adjusted basis of $280,000.During the years of her ownership,$75,000 of losses have been incurred that were suspended under the passive activity loss rules.Determine the tax treatment to Caroline on the disposition of the property.

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Question 7

In 2011,Emily invests $100,000 in a limited partnership that is not a passive activity.During 2011,her share of the partnership loss is $70,000.In 2012,her share of the partnership loss is $50,000.How much can Emily deduct in 2011 and 2012?

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Question 8

Barb borrowed $100,000 to acquire a parcel of land to be held for investment purposes.During 2011,she paid interest of $11,000 on the loan.She had AGI of $75,000 for the year.Other items related to Barb's investments include the following:
  Barb is unmarried and elects to itemize her deductions.She has no miscellaneous itemized deductions other than the investment counsel fees.

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Question 9

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 10

Seth has four passive activities.The following income and losses are generated in the current year.
  How much of the $90,000 net passive loss can Seth deduct this year? Calculate the suspended losses (by activity).

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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 AGI of...

Question 12

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 13

Samantha invested $75,000 in a passive activity several years ago,and on January 1,2010,her amount at risk was $15,000.Her shares of the income and losses in the activity for the next three years are as follows:
  How much can Samantha deduct in 2010 and 2011? What is her taxable income from the activity in 2012? (Consider both the at-risk rules as well as the passive loss rules.)

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Question 14

Explain how a taxpayer's at-risk amount in a business venture is adjusted periodically.

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Question 15

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 16

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

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Question 17

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 18

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.

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Question 19

Faye dies owning an interest in a passive activity property (adjusted basis of $150,000,suspended losses of $52,000,and a fair market value of $180,000).What,if any,can be deducted on her final income tax return?

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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.

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

Quiz 11: Investor Losses