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Exam 11: Investor Losses

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Question 1

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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.

F) A) and B)
G) C) and D)

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Question 2

True/False

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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.

A) True
B) False

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Question 3

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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.

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?

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.

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.

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

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?

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?

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?

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.

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.

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?

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.

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.

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:

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.

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?

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.

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