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CHAPTER 11--INVESTOR LOSSES

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Question;1. 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.;True False;2. 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.;True False;3. In;the current year, Don has a $55,000 loss from a business he owns. His at-risk;amount at the end of the year, prior to considering the current year loss, is;$36,000. He will be allowed to deduct the $55,000 loss this year if he is a;material participant in the business.;True False;4. Judy;owns a 20% interest in a partnership (not real estate) in which her at-risk;amount was $35,000 at the beginning of the year. The partnership borrowed;$50,000 on a recourse note and made a $40,000 profit during the year. Her;at-risk amount at the end of the year is $43,000.;True False;5. Tonya;owns an interest in an activity (not real estate) that converted recourse;financing to nonrecourse financing. Recapture of previously allowed losses is;required if Tonya?s at-risk amount is reduced below zero as a result of the;debt restructuring.;True False;6. Kelly;who earns a yearly salary of $120,000, sold an activity with a suspended;passive loss of $44,000. The activity was sold at a loss and Kelly has no;other passive activities. The suspended loss is not deductible.;True False;7. All;of a taxpayer?s tax credits relating to a passive activity can be utilized when;the activity is sold at a loss.;True False;8. Jackson;Company 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;Jackson is a personal service corporation, it may deduct $34,000 of the passive;loss.;True False;9. Oriole;Corporation has active income of $45,000 and a passive 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.;True False;10. 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.;True False;11. Wolf;Corporation has active income of $55,000 and a passive loss of $33,000 in the;current year. Wolf cannot deduct the $33,000 loss if it is a closely held C;corporation that is not a personal service corporation.;True False;12. Linda;owns investments that produce portfolio income and Activity A that produces;losses. From a tax perspective, Linda will be better off if Activity A is not;passive.;True False;13. Nathan;owns Activity A, which produces income, and Activity B, which produces passive;losses. From a tax planning perspective, Nathan will be better off if;Activity A is passive.;True False;14. A;taxpayer is considered to be a material participant if he or she spends more;than 500 hours in the activity.;True False;15. Dick;participates in an activity for 90 hours during the year. He has no employees;and there are no other participants. Dick is a material participant.;True False;16. 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.;True False;17. A;taxpayer is considered to be a material participant in a significant;participation activity if he or she spends at least 400 hours in the;activity.;True False;18. Tom;participates for 300 hours in Activity A and 250 hours in Activity B, both of;which are nonrental businesses. Both activities are active.;True False;19. Tom;participates for 100 hours in Activity A and 450 hours in Activity B, both of;which are nonrental businesses. Both activities are active.;True False;20. 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.;True False;21. Joyce;owns an activity (not real estate) in which she participates for 100 hours a;year, her husband participates for 450 hours. Joyce qualifies as a material;participant.;True False;22. When;determining whether an individual is a material participant, participation by;an owner?s spouse generally counts.;True False;23. If;an owner participates for more than 500 hours in a DVD rental activity, any;loss from that activity is treated as an active loss that can offset active;income.;True False;24. 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 a material participant with respect to the rental activity in order to;deduct the $25,000 loss under the real estate rental exception.;True False;25. 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.;True False;26. 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.;True False;27. 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.;True False;28. Individuals;can deduct from active or portfolio income losses of up to $25,000 from real;estate rental activities in which they actively participate.;True False;29. Individuals;with modified AGI of $100,000 can deduct against active or portfolio income;losses of up to $25,000 from real estate rental activities in which they;actively participate.;True False;30. Roger;owns and actively participates in the operations of an apartment building which;produces a $40,000 loss during the year. He has AGI of $150,000 from an active;business. He may deduct $25,000 of the loss.;True False;31. Lucy;owns and actively participates in the operations of an apartment complex that;produces a $50,000 loss during the year. Her modified AGI is $125,000;from an active business. Disregarding any at-risk amount limitation, she may;deduct $25,000 of the loss, and the remaining $25,000 is a suspended passive;loss.;True False;32. 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.;True False;33. Chris;receives a gift of a passive activity from his father whose basis was $60,000.;Suspended losses related to the activity are $18,000. Chris will be allowed to;offset the $18,000 suspended losses against future passive income.;True False;34. Eric;makes an installment sale of a passive activity having suspended losses of;$40,000. He collects 25% of the sales price in the current year, and will;collect 25% in each of the next three years. Eric can deduct $10,000 of the;passive loss this year.;True False;35. Gail;exchanges passive Activity A, which has suspended losses of $15,000, for;passive Activity B in a nontaxable exchange. The new owner of passive Activity;A can offset the $15,000 suspended losses against passive income in the;future.;True False;36. David;earned investment income of $20,000, incurred investment interest expense of;$12,000, and other investment expenses of $9,000 during the current year. David;can deduct $12,000 of investment interest for this year.;True False;37. Investment;income can include gross income from interest, dividends, annuities, and;royalties not derived in the ordinary course of a trade or business, income;from a passive activity, and income from a real estate activity in which the;taxpayer actively participates.;True False;38. Bob;realized a long-term capital gain of $8,000. In calculating his net;investment income, Bob may elect to include the gain in investment;income.;True False;39. Harry;earned investment income of $18,500, incurred investment interest expense of;$15,500, and other investment expenses of $9,000 during the current year. Harry;may deduct $9,500 of investment interest expense this year and carry forward;$6,000 to future years.;True False;40. In;2013, Arnold invests $80,000 for a 20% interest in a partnership in which he is;a material participant. The partnership incurs a loss with $100,000 being;Arnold?s share. Which of the following statements is incorrect?;A. Since Arnold has only $80,000 of capital at risk, he cannot deduct any;more than this amount against his other income.;B. Arnold?s nondeductible loss of $20,000 can be carried over and used in;future years (subject to the at-risk provisions).;C. If Arnold has taxable income of $40,000 from the partnership in 2014;and there are no other transactions that affect his at-risk amount, he can use;all of the $20,000 loss carried over from 2013.;D. Arnold?s $100,000 loss is nondeductible in 2013 and 2014 under the passive;loss provisions.;E. All of the statements are correct.;41. 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?;A. Ted?s nondeductible loss of $50,000 can be carried over and used in the;future (subject to the at-risk provisions).;B. If Ted has taxable income of $50,000 from the partnership in the;current year and no other transactions that affect his at-risk amount, he can;use all of the $50,000 loss carried over.;C. Since Ted has only $100,000 of capital at risk, he cannot deduct more;than $100,000 against his other income.;D. None of the above is incorrect.;42. In;2013, Joanne invested $90,000 for a 20% interest in a limited liability company;(LLC) in which she is a material participant. The LLC reported losses of;$340,000 in 2013 and $180,000 in 2014. Joanne?s share of the LLC?s losses;was $68,000 in 2013 and $36,000 in 2014. How much of these losses can;Joanne deduct?;A. $68,000 in 2013, $36,000 in 2014.;B. $68,000 in 2013, $22,000 in 2014.;C. $0 in 2013, $0 in 2014.;D. $68,000 in 2013, $0 in 2014.;E. None of the above.;43. In;2013, Kipp invested $65,000 for a 30% interest in a partnership conducting a;passive activity. The partnership reported losses of $200,000 in 2013 and;$100,000 in 2014, Kipp?s share being $60,000 in 2013 and $30,000 in 2014.;How much of the losses from the partnership can Kipp deduct assuming he owns no;other investments and does not participate in the partnership?s operations?;A. $0 in 2013, $30,000 in 2014.;B. $60,000 in 2013, $30,000 in 2014.;C. $60,000 in 2013, $5,000 in 2014.;D. $60,000 in 2013, $0 in 2014.;E. None of the above.;44. Josh;has investments in two passive activities. Activity A (acquired three;years ago) produces income of $30,000 this year, while Activity B (acquired two;years ago) produces a loss of $50,000. What is the amount of Josh?s;suspended loss for the year?;A. $0.;B. $18,000.;C. $20,000.;D. $50,000.;E. None of the above.;45. 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?;A. $195,000.;B. $200,000.;C. $240,000.;D. $245,000.;E. None of the above.;46. 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;A. $60,000 total gain, $105,000 taxable gain.;B. $10,000 total gain, $15,000 taxable gain.;C. $60,000 total gain, $0 taxable gain.;D. $60,000 total gain, $15,000 taxable gain.;E. None of the above.;47. Matt;has three passive activities and has at-risk amounts in excess of $100,000 for;each. During the year, the activities produced the following income;(losses).;Activity A;($60,000);Activity B;(40,000);Activity C;75,000;Net passive loss;($25,000);Matt?s suspended losses are as follows;A. $25,000 is allocated to C, $0 to A and B.;B. $12,500 is allocated to A, $12,500 to B.;C. $15,000 is allocated to A, $10,000 to B.;D. $8,333 is allocated to A, B, and C.;E. None of the above.;48. Green;Corporation earns active income of $50,000 and receives $40,000 in dividends;during the year. In addition, Green incurs a loss of $70,000 from an investment;in a passive activity acquired several years ago. Consider the following two;statements;(1);Green?s current deduction for passive losses is $50,000 if it is;a closely held C corporation that is not a personal service corporation.;(2);Green?s current deduction for passive losses is $0 if it is a;personal service corporation.;Which of the following answers is correct?;A. Only statement 1.;B. Only statement 2.;C. Both statements 1 and 2.;D. Neither statement 1 or 2.;E. None of the above.;49. White;Corporation, a closely held personal service corporation, has $150,000 of;passive losses, $120,000 of active business income, and $30,000 of portfolio;income. How much of the passive loss can White Corporation deduct?;A. $0.;B. $30,000.;C. $120,000.;D. $150,000.;E. None of the above.;50. 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.;A. If Charles elects to treat both departments as a single activity, he;cannot offset the $60,000 loss against the $100,000 income.;B. Charles may not treat Department A and Department B as separate;activities because they are parts of one business.;C. If Charles elects to treat the two departments as separate activities;he can offset the $60,000 loss against the $100,000 income.;D. If Charles elects to treat both departments as a single activity, he;can offset the $60,000 loss against the $100,000 income.;E. None of the above.;51. 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.;52. Which;of the following factors should be considered in determining whether an;activity is treated as an appropriate economic unit?;A. The similarities and differences in types of business.;B. The extent of common control.;C. The extent of common ownership.;D. The geographic location.;E. All of the above.;53. Which;of the following is not a factor that should be considered in;determining whether an activity is treated as an appropriate economic;unit?;A. The interdependencies between the activities.;B. The extent of common control.;C. The extent of common ownership.;D. The geographical location.;E. All of the above are relevant factors.;54. Tess;owns a building in which she rents apartments to tenants and operates a;restaurant. Which of the following statements is incorrect?;A. If 60% of Tess?s gross income is from apartment rentals and 40% is from;the restaurant, the rental operation and the restaurant business must be;treated as separate activities.;B. If 95% of Tess?s gross income is from apartment rentals and 5% is from;the restaurant, she may treat the rental operation and the restaurant business;as a single activity that is a rental activity.;C. If 5% of Tess?s gross income is from apartment rentals and 95% is from;the restaurant, she may treat the rental operation and the restaurant business;as a single activity that is not a rental activity.;D. If 98% of Tess?s gross income is from apartment rentals and 2% is from;the restaurant, the rental operation and the restaurant business must be;treated as a single activity that is not a rental activity.;E. None of the above.;55. Rick;a computer consultant, owns a separate business (not real estate) in which he;participates. He has one employee who works part-time in the business.;A. If Rick participates for 500 hours and the employee participates for;620 hours during the year, Rick qualifies as a material participant.;B. If Rick participates for 550 hours and the employee participates for;2,000 hours during the year, Rick qualifies as a material participant.;C. If Rick participates for 120 hours and the employee participates for;120 hours during the year, Rick does not qualify as a material participant.;D. If Rick participates for 95 hours and the employee participates for 5;hours during the year, Rick probably does not qualify as a material participant.;E. None of the above.;56. Ned;a college professor, owns a separate business (not real estate) in which he;participates in the current year. He has one employee who works part-time in;the business.;A. If Ned participates for 120 hours and the employee participates for 120;hours during the year, Ned does not qualify as a material participant.;B. If Ned participates for 95 hours and the employee participates for 5;hours during the year, Ned probably does not qualify as material participant.;C. If Ned participates for 500 hours and the employee participates for 520;hours during the year, Ned qualifies as material participant.;D. If Ned participates for 600 hours and the employee participates for;2,000 hours during the year, Ned qualifies as a material participant.;E. None of the above.;57. 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.;58. 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?;A. Activities A, B, C, and D are all significant participation activities.;B. Paula is a material participant with respect to Activities A, B, C, and;D.;C. Paula is not a material participant with respect to Activities A, B, C;and D.;D. Losses from all of the activities can be used to offset Paula?s active;income.;E. None of the above.;59. 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.;A. All five of Dena?s activities are significant participation activities.;B. Dena is a material participant with respect to all five activities.;C. Dena is not a material participant in any of the activities.;D. Dena is a material participant with respect to Activities B, C, D, and;E.;E. None of the above.;60. 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.;A. Maria cannot deduct the $80,000 loss from the restaurant because she is;not a material participant.;B. Maria can offset the $80,000 loss against the $150,000 of income from;the retail store.;C. Maria will not be able to deduct any losses from the restaurant until;she has been retired for at least three years.;D. Assuming Maria continues to hold the interest in the restaurant, she;will always treat the losses as active.;E. None of the above.;61. 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.;A. Leigh cannot deduct the $40,000 loss from the sporting goods store;because she is not a material participant.;B. Leigh can offset the $40,000 loss from the sporting goods store against;the $75,000 of income from the office supply store.;C. Leigh will not be able to deduct any losses from the sporting goods;store until future years.;D. Leigh will not be able to deduct any losses from the sporting goods;store until she has been retired for at least four years.;E. None of the above.;62. Jed;spends 32 hours a week, 50 weeks a year, operating a DVD rental store that he;owns. 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.;A. Neither store is a passive activity.;B. Both stores are passive activities.;C. Only the DVD rental store is a passive activity.;D. Only the music store is a passive activity.;E. None of the above.;63. Jenny;spends 32 hours a week, 50 weeks a year, operating a DVD rental store that she;owns. 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.;A. Neither store is a passive activity.;B. Both stores are passive activities.;C. Only the DVD rental store is a passive activity.;D. Only the music store is a passive activity.;E. None of the above.;64. 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.;A. The leasing activity will be treated as a rental activity and will be;treated as a passive activity regardless of how many hours Skeeter;participates.;B. The leasing activity will be treated as a rental activity and will not;be treated as a passive activity if Skeeter qualifies as a real estate;professional.;C. The leasing activity will not be treated as a rental activity.;D. The leasing activity will be treated as a rental activity and will not;be treated as a passive activity if Skeeter devotes more than 500 hours to the;activity.;E. None of the above.;65. 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?;A. $0.;B. $36,000.;C. $40,000.;D. $100,000.;E. None of the above.;66. 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;A. $90,000 from last year and $50,000 from the current year.;B. $100,000 from last year and $50,000 from the current year.;C. $0 from last year and $0 from the current year.;D. $50,000 from the current year.;E. None of the above.;67. 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?;A. $40,000 is suspended under the passive loss rules and $10,000 is;suspended under the at-risk rules.;B. $40,000 is suspended under the at-risk rules and $10,000 is suspended;under the passive loss rules.;C. $50,000 is suspended under the passive loss rules.;D. $50,000 is suspended under the at-risk rules.;E. None of the above.;68. Art?s;at-risk amount in a passive activity was $60,000 at the beginning of 2012. His;loss from the activity in 2012 is $80,000, and he had no passive activity;income during the year. Art had $20,000 of passive income from the;activity in 2013. Under the passive loss rules, Art?s suspended loss at the end;of 2013 is;A. $15,000.;B. $20,000.;C. $45,000.;D. $60,000.;E. None of the above.;69. 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;A. Vic has an at-risk amount in the activity of $120,000 and a suspended;passive loss of $80,000.;B. Vic has an at-risk amount in the activity of $200,000 and a suspended;passive loss of $80,000.;C. Vic has an at-risk amount in the activity of $120,000 and no suspended;passive loss.;D. Vic has an at-risk amount in the activity of $200,000 and no suspended;passive loss.;E. None of the above.;70. 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?;A. Wes has a loss of $25,000 suspended under the passive loss rules.;B. Wes has an at-risk amount in the activity of $0.;C. Wes has a loss of $10,000 suspended under the at-risk rules.;D. Wes has a loss of $35,000 suspended under the passive loss rules.;E. None of the above is incorrect.;71. 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.;A. The computer consulting business is a passive activity but the;apartment building is not.;B. The apartment building is a passive activity but the computer;consulting business is not.;C. Both the apartment building and the computer consulting business are;passive activities.;D. Neither the apartment building nor the computer consulting business is;a passive activity.;E. None of the above.;72. Consider;the following three statements;(1);Tad 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 $25,000 and its fair market value is;$35,000. The lease payments are $400 per year.;(2);A farmer owns land with an unadjusted basis of $25,000 and a;fair market value of $35,000. He used it for farming purposes in the two;prior years. In the current year, he leases the land to another farmer for;$400.;(3);At City Hospital, each inpatient is provided a private room;while medical care is provided.;In which of the three cases above could the rental activity automatically be;considered a passive activity?;A. Case 1 only.;B. Case 2 only.;C. Case 3 only.;D. Cases 1, 2, and 3.;E. None of the above.;73. 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?;A. $0.;B. $10,000.;C. $25,000.;D. $27,000.;E. None of the above.;74. 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?;A. $0.;B. $10,000.;C. $25,000.;D. $26,000.;E. None of the above.;75. 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.;A. The heir?s adjusted basis is $130,000, and Kate?s final deduction is;$15,000.;B. The heir?s adjusted basis is $130,000, and Kate?s final deduction is;$45,000.;C. The heir?s adjusted basis is $100,000, and Kate?s final deduction is;$45,000.;D. The heir?s adjusted basis is $175,000, and Kate has no final deduction.;E. None of the above.;76. 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.;A. Tim?s adjusted basis is $80,000, and Tim can deduct the $20,000 of;suspended losses in the future.;B. Tim?s adjusted basis is $80,000.;C. Tim?s adjusted basis is $50,000, and the suspended losses are;lost.;D. Tim?s adjusted basis is $50,000, and Tim can deduct the $20,000 of;suspended losses in the future.;E. None of the above.;77. Identify;from the list below the type of disposition of a passive activity where the;taxpayer keeps the suspended losses of the disposed activity and utilizes them;on a subsequent taxable disposition.;A. Disposition of a passive activity by gift.;B. Nontaxable exchange of a passive activity.;C. Disposition of a passive activity at death.;D. Installment sale of a passive activity.;E. None of the above.;78. Raul;is married and files a joint tax return. His current investment interest;expense of $95,000 is related to a loan used to purchase a parcel of unimproved;land. Income from investments [dividends (not qualified) and interest] total;$18,000 and miscellaneous itemized deductions (after adjustment for the;2%-of-AGI floor) amount to $2,800. In addition to the $1,400 of investment;expenses included in miscellaneous itemized deductions, Raul paid $3,600 of;real estate taxes on the unimproved land. He also has a $4,500 net long-term;capital gain from the sale of another parcel of unimproved land. Raul?s maximum;investment interest deduction for the year is;A. $95,000.;B. $18,000.;C. $17,500.;D. $13,000.;E. None of the above.;79. 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;A. $15,000.;B. $24,000.;C. $37,500.;D. $46,500.;E. None of the above.;80. Match;the term with the correct response. More than one response may be correct.;1. Active participation.;One;in which the individual?s participation equals more than 100 hours during the;year.;2. At-risk amount.;No;correct choice is given.;3. Significant participation activity.;Taxpayer;devotes time aggregating more than 500 hours in all significant parti

 

Paper#39853 | Written in 18-Jul-2015

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