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Exam 6: Losses and Loss Limitations

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Question 61

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What special passive loss treatment is available to real estate activities?

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The special passive loss rules available...

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Question 62

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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

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

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Question 63

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A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.

Peggy is in the business of factoring accounts receivable. Last year, she purchased a $30,000 account receivable for $25,000. This year, the account was settled for $25,000. How much loss can Peggy deduct and in which year?

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.

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?

Identify how the passive loss rules broadly classify various types of income and losses. Provide examples of each category.

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.

Maria, who is single, had the following items for 2016: Determine Maria's adjusted gross income for 2016.

If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value but less than it's adjusted basis, a gain is recognized.

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:

List the taxpayers that are subject to the passive loss rules and summarize the general impact of these rules on these taxpayers.

If investment property is stolen, the amount of the loss is the adjusted basis of the property at the time of the theft reduced by $100 and 10% of AGI.

A taxpayer can carry any NOL incurred forward up to 20 years.

In 2016, 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?

When determining whether an individual is a material participant, participation by an owner's spouse generally counts.

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.

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?

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) . Matt's suspended losses are as follows:

In determining whether a debt is a business or nonbusiness bad debt, the debtor's use of the borrowed funds is important.