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Exam 6: Losses and Loss Limitations

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Question 21

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Wayne owns a small apartment building that produces a $45,000 loss during the year.His AGI before considering the rental loss is $85,000.Because Wayne is an active participant with respect to the rental activity, he may deduct the $45,000 loss.

A) True
B) False

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Question 22

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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.

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

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Question 23

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Purple Corporation, a personal service corporation, earns active income of $600,000.The corporation receives $60,000 in dividends and incurs a loss of $100,000 from an investment in a passive activity acquired three years ago.What is Purple's income after considering the passive investment?

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:

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?

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.

Tom participates for 100 hours in Activity A and 450 hours in Activity B, both of which are nonrental businesses.Both activities are active.

Jose, single, had the following items for 2018:

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.

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?

On June 2, 2017, Fred's TV Sales sold Mark a large HD TV, on account, for $12,000.Fred's TV Sales uses the accrual method.In 2018, when the balance on the account was $8,000, Mark filed for bankruptcy.Fred was notified that he could not expect to receive any of the amount owed to him.In 2019, final settlement was made and Fred received $1,000.How much bad debt loss can Fred deduct in 2019?

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.

When a nonbusiness casualty loss is spread between two taxable years, the loss in the second year is reduced by 10% of adjusted gross income for the first year.

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?

In 2018, Grant's personal residence was completely destroyed by fire.Grant was insured for 100% of his actual loss, and he received the insurance settlement.Grant had adjusted gross income, before considering the casualty item, of $30,000.Pertinent data with respect to the residence follows: What is Grant's allowable casualty loss deduction?

Carl, a physician, earns $200,000 from his medical practice in the current year.He receives $45,000 in dividends and interest during the year as well as $5,000 of income from a passive activity.In addition, he incurs a loss of $50,000 from an investment in a passive activity.What is Carl's AGI for the current year after considering the passive investment?

Jim had a car accident in 2018 in which his car was completely destroyed.At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of $40,000.Jim used the car 100% of the time for business use.Jim received an insurance recovery of 70% of the value of the car at the time of the accident.If Jim's AGI for the year is $60,000, determine his deductible loss on the car.

Rachel acquired a passive activity several years ago.Until 2015, the activity was profitable, and Rachel's at-risk amount at the beginning of 2015 was $300,000.The activity produced losses of $80,000 in 2015, $50,000 in 2016, and $70,000 in 2017.In 2018, the activity produced income of $90,000.How much is Rachel's suspended passive activity loss at the beginning of 2019?

A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.

Alma is in the business of dairy farming.During the year, one of her barns was completely destroyed by fire.The adjusted basis of the barn was $90,000.The fair market value of the barn before the fire was $75,000.The barn was insured for 95% of its fair market value, and Alma recovered this amount under the insurance policy.Alma has adjusted gross income for the year of $40,000 before considering the casualty) .Determine the amount of loss she can deduct on her tax return for the current year.