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Exam 6: Losses and Loss Limitations

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Question 31

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Orange Corporation, a closely held non-personal service) C corporation, earns active income of $300,000 in the current year.The corporation also receives $35,000 in dividends and incurs a loss of $50,000 from an investment in a passive activity.What is Orange's income for the year after considering the passive investment?

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A closely held non-personal service) C c...

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Question 32

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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.

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B) False

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Question 33

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A father cannot claim a loss on his daughter's rental use property.

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.

Joyce, an architect, earns $100,000 from her practice in the current year.In addition, she receives $35,000 in dividends, capital gains, and annuity income during the year.Further, she incurs a loss of $35,000 from an investment in a passive activity.Joyce's AGI for the year after considering the passive investment is $100,000.

The cost of repairs to damaged property is not an acceptable measure of the loss in value of the property.

During the current year, Ethan performs personal services as follows: 800 hours in his information technology consulting practice, 625 hours in a real estate development business, and 510 hours in a condominium leasing operation.He expects that losses will be realized from the two real estate ventures while his consulting practice will show a profit.Ethan files a joint return with his spouse whose salary is $125,000.The income and losses from the following ventures is considered active and not subject to the passive activity loss limitations:

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 activity loss can be deducted on Kim's final income tax return.

The amount of a loss on insured personal use property is reduced by the insurance coverage if no claim is made against the insurer.

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.

A nonbusiness bad debt deduction can be taken any year after the debt becomes totally worthless.

Sherri owns an interest in a business that is not a passive activity and in which she has $20,000 at risk.If the business incurs a loss from operations during the year and her share of the loss is $32,000, this loss will be fully deductible.

Match the term with the correct response.More than one response may be correct. -At-risk amount.

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.

Nell sells a passive activity with an adjusted basis of $45,000 for $105,000.Suspended losses attributable to this property total $45,000.The total gain and the taxable gain are:

Kelly, who earns a yearly salary of $120,000, sold an activity with a suspended passive activity loss of $44,000.The activity was sold at a loss and Kelly has no other passive activities.The suspended loss is not deductible.

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

The amount of a business loss cannot exceed the amount of the taxpayer's NOL for the taxable year.

Oriole Corporation has active income of $45,000 and a passive activity loss of $23,000 in the current year.Under an exception, Oriole can deduct the $23,000 loss if it is a personal service corporation.

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.