Question;49. LO.2, 3, 7 A number of years ago, Lee acquired a 20% interest in the BlueSky Partnership for $60,000. The partnership was profitable through 2012, and Lee?s amount at risk in the partnership interest was $120,000 at the beginning of 2013. BlueSky incurred a loss of $400,000 in 2013 and reported income of $200,000 in 2014. Assuming that Lee is not a material participant, how much of his loss from BlueSky Partnership is deductible in 2013 and 2014? Consider the at-risk and passive loss rules.50. LO.2, 3, 5, 7 Grace acquired an activity four years ago. The loss from the activity is $50,000 in the current year (at-risk basis of $40,000 as of the beginning of the year).Without considering the loss from the activity, she has gross income of $140,000. If the activity is a convenience store and Grace is a material participant, what is the effect of the activity on her taxable income?51. LO.2, 3, 5, 7 Jonathan, a physician, earns $200,000 from his practice. He also receives $18,000 in dividends and interest on various portfolio investments. During the year, he pays $45,000 to acquire a 20% interest in a partnership that produces a $300,000 loss.Compute Jonathan?s AGI, assuming that:a. He does not participate in the operations of the partnership.b. He is a material participant in the operations of the partnership.52. LO.2, 3, 7 Five years ago Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2012, his amount at risk in the activity was $30,000. His shares of the income and losses were as follows:Year Income (Loss)2012 ($40,000)2013 (30,000)2014 50,000How much can Gerald deduct in 2012 and 2013? What is his taxable income from the activity in 2014? Consider the at-risk rules as well as the passive loss rules.53. LO.3, 8 Several years ago Benny Jackson (125 Hill Street, Charleston, WV 25311) acquired an apartment building that currently generates a loss of $60,000. Benny?s AGI is $130,000 before considering the loss. The apartment building is in an exclusive part of the city, and Benny is an active participant. Write a letter to Benny explaining what effect the loss will have on his AGI.54. LO.3, 8 This year Maria works 1,200 hours as a computer consultant, 320 hours in a real estate development business, and 400 hours in real estate rental activities. Juan, her husband, works 250 hours in the real estate development business and 180 hours in the real estate rental business. Maria earns $60,000 as a computer consultant, while she andJuan lost $18,000 in the real estate development business and $26,000 in the real estate rental business. How should they treat the losses?55. LO.3, 8, 11 Bonnie and Jake (ages 35 and 36, respectively) are married with no dependents and live in Montana (not a community property state). Because Jake has large medical expenses, they seek your advice about filing separately to save taxes. Their income and expenses for 2013 are as follows:Bonnie?s salary $ 42,500Jake?s salary 26,000Interest income (joint) 1,500Rental loss from actively managed rental property (23,000)Jake?s unreimbursed medical expenses 8,500All other itemized deductions:*Bonnie 9,000Jake 3,400 *None subject to limitationsDetermine whether Bonnie and Jake should file jointly or separately for 2013.56. LO.3, 8, 11 Mary and Charles have owned a beach cottage on the New Jersey shore for several years and have always used it as a family retreat. When they acquired the property, they had no intentions of renting it. Because family circumstances have changed, they are considering using the cottage for only two weeks a year and renting it for the remainder of the year. Their AGI approximates $80,000 per year, and they are in the 32% tax bracket (combined Federal and state). Interest and real estate taxes total $8,000 per year and are expected to continue at this level in the foreseeable future. If Mary andCharles rent the property, their incremental revenue and expenses are projected to be:Rent income $ 22,000Rental commissions (4,000)Maintenance expenses (9,000)Depreciation expense (10,000)If the cottage is converted to rental property, they plan to be actively involved in key rental and maintenance decisions. Given the tax effects of converting the property to rental use, would the cash flow from renting the property be enough to meet the $12,000 annual mortgage payment? Explain.57. LO.3, 8 During the current year, Gene, a CPA, performs services as follows: 1,800 hours in his tax practice and 50 hours in an apartment leasing operation in which he has a 15% interest. Because of his oversight duties, Gene is considered to be an active participant. He expects that his share of the loss realized from the apartment leasing operation will be $30,000 and that his tax practice will show a profit of approximately $80,000. Gene is single and has no other income. Discuss the character and treatment of the income and losses generated by these activities.58. LO.3, 8 Ida, who has AGI of $80,000 before considering rental activities, is active in three separate real estate rental activities and is in the 28% tax bracket. She has $12,000 of losses from Activity A, $18,000 of losses from Activity B, and income of $10,000 fromActivity C. She also has $2,100 of tax credits from Activity A. Calculate the deductions and credits that she is allowed and the suspended losses and credits.59. LO.8 Ella has $105,000 of losses from a real estate rental activity in which she actively participates. She has other rental income of $25,000 and other passive income of $32,000. How much rental loss can Ella deduct against active and portfolio income (ignoring the at-risk rules)? Does she have any suspended losses to carry over? Explain.60. LO.9 At death, Francine owns an interest in a passive activity property (adjusted basis of $160,000, suspended losses of $16,000, and fair market value of $170,000). What is deductible on Francine?s final income tax return?61. LO.9 In the current year, Abe gives an interest in a passive activity to his daughter,Andrea. The value of the interest at the date of the gift is $25,000, and its adjusted basis to Abe is $13,000. During the time that Abe owned the investment, losses of $3,000 could not be deducted because of the passive loss limitations. What is the tax treatment of the suspended passive activity losses to Abe and Andrea?62. LO.9 Tonya sells a passive activity in the current year for $150,000. Her adjusted basis in the activity is $50,000, and she uses the installment method of reporting the gain. The activity has suspended losses of $12,000. Tonya receives $60,000 in the year of sale. What is her gain? How much of the suspended losses can she deduct?63. LO.10, 11 In 2013, Kathleen Tweardy incurs $30,000 of interest expense related to her investments. Her investment income includes $7,500 of interest, $6,000 of qualified dividends, and a $12,000 net capital gain on the sale of securities. Kathleen asks you to compute the amount of her deduction for investment interest, taking into consideration any options she might have. In addition, she wants your suggestions as to any tax planning alternatives that are available. Write a letter to her that contains your advice.Kathleen lives at 11934 Briarpatch Drive, Midlothian, VA 23113.64. LO.10 Helen borrowed $150,000 to acquire a parcel of land to be held for investment purposes. During 2013, she paid interest of $12,000 on the loan. She had AGI of $90,000 for the year. Other items related to Helen?s investments include the following:Investment income $11,000Long-term capital gain on sale of stock 3,500Investment counsel fees 2,000Helen is unmarried and elects to itemize her deductions. She has no miscellaneous itemized deductions other than the investment counsel fees.a. Determine Helen?s investment interest deduction for 2013.b. Discuss the treatment of the portion of Helen?s investment interest that is disallowed in 2013.
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