Question 1

Tonya had the following items for last year:
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For the current year, Tonya had the following items:
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Determine Tonya's adjusted gross income for the current year.

Accepted Answer

The answer of Tonya had the following items for last...

Question 2

Josh 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 $100,000 in the current year. At the beginning of this year, Josh's at-risk amounts in Activities A and B are $10,000 and $100,000, respectively. What is the amount of Josh's suspended passive loss with respect to these activities at the end of the current year?

Accepted Answer

The loss of Activity B exceeds the at-risk amount of $100,000, meaning that Josh is not allowed to deduct this loss in the current year. Thus, $100,000 of the loss from Activity B is suspended. The income from Activity A ($60,000) can be used to offset the remaining $40,000 of the loss from Activity B. Therefore, $40,000 of the loss from Activity B is also suspended, resulting in a total suspended passive loss of $40,000.

Question 3

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.

Accepted Answer

To be a material participant, an individual must participate in the activity for more than 500 hours during the year or participate in the activity for any amount of time if it constitutes substantially all of the participation in that activity by anyone. Dena did not meet the second requirement for any of the activities, but she did participate in Activities B, C, D, and E for more than 100 hours each, making her a material participant in those activities. Activity A is not mentioned as constituting substantially all of her participation in that activity, so it is not a significant participation activity.

Question 4

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?

Accepted Answer

The answer of Pablo, who is single, has $95,000 of...

Question 5

Maria, who is single, had the following items for 2016:
Determine Maria's adjusted gross income for 2016.

Accepted Answer

The answer of Maria, who is single, had the following...

Question 6

Jed spends 32 hours a week, 50 weeks a year, operating a bicycle rental store that he owns at a resort community. 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.

Accepted Answer

The answer of Jed spends 32 hours a week, 50...

Question 7

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:

Accepted Answer

The at-risk amount at the beginning of the current year is $200,000 ($300,000 - $100,000). Since the current year's loss of $50,000 exceeds her at-risk amount, she can deduct the entire $50,000 loss. For the prior year's loss of $100,000, only $50,000 can be deducted due to the at-risk rules. Therefore, her suspended passive loss is $100,000 (from last year) + $50,000 (from the current year) = $150,000. Choice A is incorrect because she cannot deduct the full loss from last year due to the at-risk rules. Choice C is incorrect because she has passive losses to carry forward. Choice D is incorrect because she already deducted the full $50,000 loss from the current year.

Question 8

Art's at-risk amount in a passive activity was $60,000 at the beginning of 2014. His loss from the activity in 2014 is $80,000, and he had no passive activity income during the year. Art had $20,000 of passive income from the activity in 2015. Under the passive loss rules, Art's suspended loss at the end of 2015 is:

Accepted Answer

The answer of Art's at-risk amount in a passive activity...

Question 9

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

The answer of Kate dies owning a passive activity with...

Question 10

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.

Accepted Answer

Maria meets the requirements for being a material participant in the restaurant activity for the last 20 years, which means she can deduct up to $80,000 of losses from the restaurant against her income from the retail store. There is no requirement for her to be actively participating in the restaurant activity in the current year.

Question 11

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.

Accepted Answer

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Question 12

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

Leigh can offset the $40,000 loss from the sporting goods store against the $75,000 of income from the office supply store as she is still a material participant in the office supply store. The fact that she retired from the sporting goods store does not impact her ability to deduct the loss. Therefore, option B is the best choice. Options A, C, D, and E are incorrect based on the information provided.

Question 13

Jose, single, had the following items for 2016:
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Accepted Answer

The answer of Jose, single, had the following items for...

Question 14

Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a limited partnership, and a $26,000 passive loss from a real estate rental activity in which she actively participates. If her modified adjusted gross income is $155,000, how much of the $26,000 loss is deductible?

Accepted Answer

The answer of Josie, an unmarried taxpayer, has $155,000 in...

Question 15

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.

Accepted Answer

The answer of Jon owns an apartment building in which...

Question 16

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?

Accepted Answer

Wes has a loss of $25,000 suspended under the passive loss rules, not $35,000. The at-risk rules limit the loss to the amount an individual has invested in the activity, which is $25,000 in this case. Therefore, Wes has an at-risk amount of $0 at the end of the year. Since he has no passive activity income to offset the loss, the remaining $10,000 of the loss is suspended under the at-risk rules.

Question 17

Rita earns a salary of $150,000, and invests $40,000 for a 20% interest in a passive activity. Operations of the activity result in a loss of $250,000, of which Rita's share is $50,000. How is her loss characterized?

Accepted Answer

Rita's investment of $40,000 in the passive activity makes her subject to the passive loss rules. The loss of $50,000 that she incurs in the activity is below her at-risk amount of $40,000, so there are no at-risk rules limiting her deduction. However, under the passive loss rules, she can only deduct up to $40,000 of the $50,000 loss in the current year. The remaining $10,000 is suspended and carried forward to future years, subject to future passive activity income or gains or certain other exceptions.

Question 18

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.

Accepted Answer

The answer of Caroyl made a gift to Tim of...

Question 19

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:

Accepted Answer

The at-risk amount is reduced by any losses incurred during the year, so Vic's at-risk amount at the end of the year is $200,000 - $80,000 = $120,000. The $80,000 loss is a suspended passive loss because there is no passive activity income to offset it.

Question 20

Jenny spends 32 hours a week, 50 weeks a year, operating a bicycle rental store that she owns at a resort community. 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.

Accepted Answer

The answer of Jenny spends 32 hours a week, 50...

Quiz 6: Losses and Loss Limitations

Tonya had the following items for last year: For the current year, Tonya had the following items: Determine Tonya's adjusted gross income for the current year.

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.

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?

Maria, who is single, had the following items for 2016: Determine Maria's adjusted gross income for 2016.

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.

Jose, single, had the following items for 2016:

Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a limited partnership, and a $26,000 passive loss from a real estate rental activity in which she actively participates. If her modified adjusted gross income is $155,000, how much of the $26,000 loss is deductible?

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.

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?

Rita earns a salary of $150,000, and invests $40,000 for a 20% interest in a passive activity. Operations of the activity result in a loss of $250,000, of which Rita's share is $50,000. How is her loss characterized?

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.

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:

Quiz 6: Losses and Loss Limitations

Tonya had the following items for last year: ​ For the current year, Tonya had the following items: ​ Determine Tonya's adjusted gross income for the current year.

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.

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?

Maria, who is single, had the following items for 2016: Determine Maria's adjusted gross income for 2016.

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.

Jose, single, had the following items for 2016: ​

Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a limited partnership, and a $26,000 passive loss from a real estate rental activity in which she actively participates. If her modified adjusted gross income is $155,000, how much of the $26,000 loss is deductible?

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.

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?

Rita earns a salary of $150,000, and invests $40,000 for a 20% interest in a passive activity. Operations of the activity result in a loss of $250,000, of which Rita's share is $50,000. How is her loss characterized?

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.

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:

Tonya had the following items for last year: For the current year, Tonya had the following items: Determine Tonya's adjusted gross income for the current year.

Jose, single, had the following items for 2016: