Question 1

Why do the wash sale rules apply to the sale of stock at a loss but not to the sale of stock at a gain?

Accepted Answer

Tax avoidance is possible when a sale is

Question 2

Willie sells the following assets and realizes the following gains (losses)during the current year:   ​
As a result of these sales,Willie's adjusted gross income will:

Accepted Answer

A) Decrease by $3,000. 
B) Decrease by $4,000. 
C) Decrease by $11,000. 
D) Decrease by $15,000. 
E) Not change. 
A) Decrease by $3,000. 
B) Decrease by $4,000. 
C) Decrease by $11,000. 
D) Decrease by $15,000. 
E) Not change.

Question 3

Travis is a 30% owner of 3 rental houses.He spends 625 hours a year managing the properties.In addition,he owns a 20% interest in a real estate business to which he devotes 1,800 hours a year.The rental units generate a total loss of $22,000,and Travis' adjusted gross income in the current year,before considering the rental properties,is $120,000.How much of the loss can Travis deduct?

Accepted Answer

A) $- 0 - 
B) $4,500 
C) $6,600 
D) $15,000 
E) $22,000 
A) $- 0 - 
B) $4,500 
C) $6,600 
D) $15,000 
E) $22,000

Question 4

While most rental activities are classified as passive,an exception is low-income housing.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following events is a "casualty" loss?
I.Diamonds stolen by thief,reported to police
II.Florida orange trees killed by a freeze.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 6

Frasier sells some stock he purchased several years ago for $10,000 to his brother,Niles,for $6,000.
I.If this is Frasier's only stock transaction,he can deduct only $3,000 of the loss.
II.If Niles sells the stock for $10,000,his taxable gain is $4,000.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 7

Kenneth owns all of the stock of Kearney Corporation.Kenneth is also the President of Kearney and works full-time running the corporation.During the current year,Kearney has a loss of $40,000 from its operations.
I.If Kearney is an S Corporation,the corporation may carryback the loss 2 years (and obtain a refund of taxes paid)with any remaining loss carried forward 20 years.
II.If Kearney is a regular corporation,Kenneth may deduct the loss for AGI on his personal tax return because the corporation is a flow through entity.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 8

Norris owns a passive activity that has a suspended loss of $12,000.The activity has a fair market value of $42,000 and his adjusted basis in the activity is $27,000.
I.If Norris gifts the property,he is allowed to deduct $3,000 of the suspended loss.
II.If Norris dies,none of the suspended loss is deductible.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 9

Match each statement with the correct term below.
-Recourse debt

Accepted Answer

A) A loss that is generally not deductible. 
B) The borrower is personally liable for the debt. 
C) The loss is used to offset income in future periods. 
D) A liability that is only secured by the underlying property. 
E) The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business. 
A) A loss that is generally not deductible. 
B) The borrower is personally liable for the debt. 
C) The loss is used to offset income in future periods. 
D) A liability that is only secured by the underlying property. 
E) The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business.

Question 10

Maryanne is the senior chef for Bistro 501 Restaurant.Discuss whether the following losses are affected by the passive activity rules.
a.Maryanne has a $4,500 loss from her ownership interest in a catfish-farm limited partnership. Maryanne is a limited partner.
b.Maryanne has a $7,000 loss from her ownership interest in a feeder-lamb limited partnership. Maryanne is a general partner and is responsible for day-to-day management decisions.
c.Maryanne has a $11,000 loss from her ownership of a low-income housing project.
d.Maryanne owns a rental house across the street from North Forest College and actively participates in managing the rental property. The rental property generates a loss of $5,000 for the current year.

Accepted Answer

The answer of Maryanne is the senior chef for Bistro...

Question 11

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

Accepted Answer

A) A loss that is generally not deductible. 
B) The borrower is personally liable for the debt. 
C) The loss is used to offset income in future periods. 
D) A liability that is only secured by the underlying property. 
E) The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business. 
A) A loss that is generally not deductible. 
B) The borrower is personally liable for the debt. 
C) The loss is used to offset income in future periods. 
D) A liability that is only secured by the underlying property. 
E) The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business.

Question 12

Match each statement with the correct term below.
-Nonrecourse debt

Accepted Answer

A) A loss that is generally not deductible. 
B) The borrower is personally liable for the debt. 
C) The loss is used to offset income in future periods. 
D) A liability that is only secured by the underlying property. 
E) The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business. 
A) A loss that is generally not deductible. 
B) The borrower is personally liable for the debt. 
C) The loss is used to offset income in future periods. 
D) A liability that is only secured by the underlying property. 
E) The loss may be used to offset income from prior periods.
F)A type of stock that receives some ordinary loss treatment.
G)Involved in a rental activity for more than 500 hours in a year.
H)Cash or other assets contributed plus recourse debts of the activity.
I)Owns at least a 10% interest and is significantly involved in the rental activity.
J)The amount of the loss for fully destroyed property is the property's adjusted basis.
K)The amount of loss is limited to the lower of the property's adjusted basis, or the reduction in fair market value.
L)Management is left to at least one general partner whose liability is not limited and who is responsible for the on-going activities of the business.

Question 13

Mary and Philip purchased an apartment building in January 2011,which they actively manage.During the current year,the apartment building generates a loss of $35,000.Their other income is as follows:   ​
What is Mary and Philip's adjusted gross income?

Accepted Answer

A) ​$59,000 
B) ​$63,000 
C) ​$84,000 
D) ​$88,000 
E) ​None of the above. 
A) ​$59,000 
B) ​$63,000 
C) ​$84,000 
D) ​$88,000 
E) ​None of the above.

Question 14

A corporation has a net capital loss.The significance of a net capital loss in 2016 for a corporation is that it can be carried back 3 years and carried forward 5 years by a corporation to offset capital gains in other taxable years.

Accepted Answer

A) True 
 B)False

Question 15

Perry owns all of the stock of Sound Corporation.Perry is also the President of Sound and works full-time running Sound.During the current year,Sound has a loss of $75,000 from its operations.
i.If Sound is an S Corporation,Perry deducts the loss on his personal tax return as a deduction from AGI.II.If Sound is a regular corporation,the corporation can elect to carryforward the loss to reduce taxable income during the next 20 years.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 16

John discovers that termites have destroyed the front porch of his office building.The damage occurred over a 3-year period.He is eligible for a casualty loss deduction.

Accepted Answer

A) True 
 B)False

Question 17

During the year Wilbur has the following capital gains and losses:   
​
What is the effect of the capital gains and losses on Wilbur's taxable income?

Accepted Answer

The short-term gains and losses are nett

Question 18

Olivia sells some stock she purchased several years ago for $9,000 to her brother Jack for $12,000.One year later Jack sells the stock for $15,000.The tax consequences to Olivia and Jack are:
​
​

Accepted Answer

The answer of Olivia sells some stock she purchased several...

Question 19

Constance owns a boutique.During the current year,she has gross income of $400,000 and allowable deductions related to the business of $425,000.
I.Constance has incurred a transaction loss,which represents her unrecovered cost of capital.
II.Constance has suffered an annual loss,which may be carried back 2 years or forward 20 years if not used in the current year.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Question 20

A passive activity
I.includes any trade or business in which a taxpayer does not materially participate.
II.includes rentals of apartment buildings,rental houses,etc.,where no significant personal services are involved.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Both statements are correct. 
D) Neither statement is correct.

Why do the wash sale rules apply to the sale of stock at a loss but not to the sale of stock at a gain?

Willie sells the following assets and realizes the following gains (losses)during the current year: As a result of these sales,Willie's adjusted gross income will:

While most rental activities are classified as passive,an exception is low-income housing.

Which of the following events is a "casualty" loss? I.Diamonds stolen by thief,reported to police II.Florida orange trees killed by a freeze.

Frasier sells some stock he purchased several years ago for $10,000 to his brother,Niles,for $6,000. I.If this is Frasier's only stock transaction,he can deduct only $3,000 of the loss. II.If Niles sells the stock for $10,000,his taxable gain is $4,000.

Match each statement with the correct term below. -Recourse debt

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

Match each statement with the correct term below. -Nonrecourse debt

Mary and Philip purchased an apartment building in January 2011,which they actively manage.During the current year,the apartment building generates a loss of $35,000.Their other income is as follows: What is Mary and Philip's adjusted gross income?

A corporation has a net capital loss.The significance of a net capital loss in 2016 for a corporation is that it can be carried back 3 years and carried forward 5 years by a corporation to offset capital gains in other taxable years.

John discovers that termites have destroyed the front porch of his office building.The damage occurred over a 3-year period.He is eligible for a casualty loss deduction.

During the year Wilbur has the following capital gains and losses: What is the effect of the capital gains and losses on Wilbur's taxable income?

Olivia sells some stock she purchased several years ago for $9,000 to her brother Jack for $12,000.One year later Jack sells the stock for $15,000.The tax consequences to Olivia and Jack are:

A passive activity I.includes any trade or business in which a taxpayer does not materially participate. II.includes rentals of apartment buildings,rental houses,etc.,where no significant personal services are involved.

Federal Income Taxation-An Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Non-Recognition Transactions

Choice of Business Entity-General Tax and Nontax Factorsformation

Choice of Business Entity-Operations and Distributions

Choice of Business Entity-Other Considerations

Tax Research

Filters

Exam 7: Losses-Deductions and Limitations

Why do the wash sale rules apply to the sale of stock at a loss but not to the sale of stock at a gain?

Willie sells the following assets and realizes the following gains (losses)during the current year: ​ As a result of these sales,Willie's adjusted gross income will:

While most rental activities are classified as passive,an exception is low-income housing.

Which of the following events is a "casualty" loss? I.Diamonds stolen by thief,reported to police II.Florida orange trees killed by a freeze. ​

Frasier sells some stock he purchased several years ago for $10,000 to his brother,Niles,for $6,000. I.If this is Frasier's only stock transaction,he can deduct only $3,000 of the loss. II.If Niles sells the stock for $10,000,his taxable gain is $4,000. ​

Match each statement with the correct term below. -Recourse debt

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

Match each statement with the correct term below. -Nonrecourse debt

Mary and Philip purchased an apartment building in January 2011,which they actively manage.During the current year,the apartment building generates a loss of $35,000.Their other income is as follows: ​ What is Mary and Philip's adjusted gross income?

A corporation has a net capital loss.The significance of a net capital loss in 2016 for a corporation is that it can be carried back 3 years and carried forward 5 years by a corporation to offset capital gains in other taxable years.

John discovers that termites have destroyed the front porch of his office building.The damage occurred over a 3-year period.He is eligible for a casualty loss deduction.

During the year Wilbur has the following capital gains and losses: ​ What is the effect of the capital gains and losses on Wilbur's taxable income?

Olivia sells some stock she purchased several years ago for $9,000 to her brother Jack for $12,000.One year later Jack sells the stock for $15,000.The tax consequences to Olivia and Jack are: ​ ​

A passive activity I.includes any trade or business in which a taxpayer does not materially participate. II.includes rentals of apartment buildings,rental houses,etc.,where no significant personal services are involved. ​

Federal Income Taxation-An Overview

Income Tax Concepts

Income Sources

Income Exclusions

Introduction to Business Expenses

Business Expenses

Taxation of Individuals

Acquisitions of Property

Cost Recovery on Property: Depreciation, depletion, and Amortization

Property Dispositions

Non-Recognition Transactions

Choice of Business Entity-General Tax and Nontax Factorsformation

Choice of Business Entity-Operations and Distributions

Choice of Business Entity-Other Considerations

Tax Research

Filters

Willie sells the following assets and realizes the following gains (losses)during the current year: As a result of these sales,Willie's adjusted gross income will:

Which of the following events is a "casualty" loss? I.Diamonds stolen by thief,reported to police II.Florida orange trees killed by a freeze.

Frasier sells some stock he purchased several years ago for $10,000 to his brother,Niles,for $6,000. I.If this is Frasier's only stock transaction,he can deduct only $3,000 of the loss. II.If Niles sells the stock for $10,000,his taxable gain is $4,000.

Mary and Philip purchased an apartment building in January 2011,which they actively manage.During the current year,the apartment building generates a loss of $35,000.Their other income is as follows: What is Mary and Philip's adjusted gross income?

During the year Wilbur has the following capital gains and losses: What is the effect of the capital gains and losses on Wilbur's taxable income?

Olivia sells some stock she purchased several years ago for $9,000 to her brother Jack for $12,000.One year later Jack sells the stock for $15,000.The tax consequences to Olivia and Jack are:

A passive activity I.includes any trade or business in which a taxpayer does not materially participate. II.includes rentals of apartment buildings,rental houses,etc.,where no significant personal services are involved.