Exam 7: Losses-Deductions and Limitations

Lu-Yin purchased her consulting business with $75,000 of her own funds and she borrowed $125,000 from the local bank.If she is personally responsible for the loan,she is at risk only for $50,000.

A passive activity I.includes an interest in a limited partnership held by a limited partner investor. II.includes a working interest in an oil and gas deposit. ​

In April of the current year,Speedy Printing Company's delivery van is stolen.The van was originally purchased in 2011 for $13,000,and its fair market value at the time of the theft is $4,000.The van has a zero adjusted basis on the books of Speedy.The previous year,Speedy dropped theft insurance on the van,so it receives no compensation for the loss from its insurance company.What amount of loss can Speedy deduct?

Roscoe and Amy are married and own 12,000 shares of qualifying small business stock that they purchased for $150,000.During the current year,they sell 10,000 shares of the small business stock to an unrelated third party for $30,000.Eager to sell the remaining shares,they sell the other 2,000 shares to Amy's sister for $4,000.In addition,they sell stock with a basis of $5,000 for $10,000.The stock was acquired in 2007.In 2010,Roscoe and Amy loaned her brother,Carl,$8,000 to start his business.Carl has only repaid $2,000 on his documented loan.During the year,Carl has filed for bankruptcy.The bankruptcy court liquidates all of Carl's assets and Roscoe and Amy receive nothing from the liquidation. I.Roscoe and Amy can deduct $120,000 as an ordinary loss on the small business stock. II.Roscoe and Amy have a net short-term capital loss of $1,000. ​

Match each statement with the correct term below. -NOL carryforward

Bowden is a single individual and has the following income (loss)for the current tax year: ​ What is Bowden's adjusted gross income for this year?

Portfolio income consists of unearned income from dividends,interest,royalties,annuities,and other assets held as investments.

Ling owns 3 passive investments.During the last two years,she has the following income and loss from each activity: ​ At the end of 2016 what is the amount of suspended loss allocated to Activity 2?

During the current year,Cathy realizes Determine the tax consequences of these events.

Match each statement with the correct term below. -Active participant

Match each statement with the correct term below. -At-risk amount

During the current year,Diane disposes of Fine Foods Limited Partnership,at a gain of $12,000.Diane's adjusted gross income from non-passive sources is $120,000.She has a suspended loss from Fine Foods of $22,000,and a loss from other passive activities of $4,500.What is the amount of Diane's adjusted gross income for the current year?

If a taxpayer has the following for the current year: ​ I.If the taxpayer is a regular corporation,taxable income from the three activities is a loss of $19,000. II.If the taxpayer is an individual and the passive income is related to a rental real estate activity in which the taxpayer is an active participant,taxable income is $11,000. ​

Match each statement with the correct term below. -Transaction loss

Fowler sells stock he had purchased for $22,000 to his brother,Phil,for $15,000.What is the tax consequence of the sale to Fowler and Phil? Explain the three possible tax consequences if Phil sells the stock two years later to his neighbor?

Barry owns all of the stock of Jerrico Corporation; an internet based gaming firm.Barry is also the President of and works full-time for Jerrico.During the current year,Jerrico has a loss of $125,000 from its operations. i.If Jerrico is an S Corporation,Barry may deduct the loss on his personal tax return as a deduction for AGI.II.If Jerrico is a regular corporation,the corporation can elect to carryforward the loss to reduce taxable income during the next 20 years. ​

Darien owns a passive activity that has a basis of $36,000 and a suspended loss of $22,000.If Darien dies during the year when the passive activity has a fair market value of $52,000,how will the information be presented on his tax return? I.Darien will report an ordinary loss of $6,000. II.Darien will report a capital gain of $16,000. ​

Match each statement with the correct term below. -Personal-use loss

Erline begins investing in various activities during the current year.Unfortunately,her tax advisor fails to warn her about the passive loss rules.The results of the three passive activities she purchased for the current year are:

"Active participation" and "real estate professional" are both exceptions to the general rule for passive activity losses with rental real estate. I.One of the tests that an individual must meet to qualify as a real estate professional is that the taxpayer spends more than 50% of his/her time in real property trades or businesses. II.A taxpayer with an AGI of $190,000 qualifying under the real estate professional exception may deduct an unlimited amount of rental real estate losses. ​