Question 1

Discuss the difference(s)between the real estate professional exception and the active participation exception when dealing with rental properties.

Accepted Answer

The answer of Discuss the difference(s)between the real estate professional...

Question 2

Kenzie and Ross equally own rental real estate.The rental property generated a loss of $20,000.Kenzie is also employed as a part-time Tupperware salesperson and full time as a real estate agent.For her share of the loss to be fully deductible,she must:
I.Not have an adjusted gross income in excess of $100,000.
II.Spend more than 750 hours,in total,as a realtor
III.Spend more than 100 hours managing the rental activity,and spend more time than Ross.
IV.She must spend more than 50% of her time as a realtor and must own more than 5% of the real estate agency.
​

Accepted Answer

A) Only statement I is correct. 
B) Only statement II is correct. 
C) Statements I and II are correct. 
D) Statements II, III, and IV are correct. 
E) Statements I, II, III, and IV are correct. 
A) Only statement I is correct. 
B) Only statement II is correct. 
C) Statements I and II are correct. 
D) Statements II, III, and IV are correct. 
E) Statements I, II, III, and IV are correct.

Question 3

Which of the following must be classified as "portfolio income?"
I.Dividend income from an investment in Lincoln Corp.common stock.
II.Royalty income from the ownership of the mineral rights on land.The taxpayer does not share the expenses with the extraction company.
​

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 4

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

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 5

Hubert and Jared are both involved in automobile accidents,which totally destroy their automobiles this year.Hubert and Jared purchased the automobiles at the same time for the same cost,and neither of them receives any insurance reimbursement for the destruction of their automobiles.Before considering the effect of their casualties,Hubert and Jared have identical adjusted gross incomes.Although Hubert and Jared are seemingly alike in every aspect regarding the automobiles,Hubert is allowed a deduction of $2,000 for the destruction of his automobile and Jared is not allowed any deduction for his automobile.What causes this disparity of treatments between Hubert and Jared? Explain.Use examples if necessary.

Accepted Answer

The difference is usage.Hubert uses his

Question 6

Which of the following must be classified as "portfolio income?"
I.Interest income on CDs from First National Bank.
II.Loss realized from the sale of one-half of his stock shares in Lockleed Corp.Lockleed is qualified small business stock.
​

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

Ronald is exploring whether to open a franchise of Quick Tax.He plans on forming an S corporation and investing $15,000 of his own money while borrowing $45,000 from the bank to finance the purchase of the necessary computing equipment and software.The bank has proposed two financing options.Under the first option,the interest rate is only 10%,but the loan is recourse.The second option increases the interest rate to 15%,but the loan is nonrecourse.
a.Discuss the tax and non-tax aspects of the two options.
b.If Ronald incurs a $20,000 loss in the first year of operations, how much, if any, of the loss can he deduct if the loan is recourse? Nonrecourse?

Accepted Answer

The answer of Ronald is exploring whether to open a...

Question 8

Natalie is the owner of an apartment complex.She actively participates in the management of the building.During the current year,it generates a taxable loss of $33,000.Natalie's other sources of income are salary of $114,000 and interest of $16,000.What is Natalie's allowable loss from the apartment in the current year?

Accepted Answer

A) $-0- 
B) $10,000 
C) $15,000 
D) $16,000 
E) $25,000 
A) $-0- 
B) $10,000 
C) $15,000 
D) $16,000 
E) $25,000

Question 9

Tyrone is the president of JWH Manufacturing and owns 30% of its stock.JWH is organized as an S corporation.During 2016,JWH has a loss of $240,000.At the beginning of 2016,Tyrone's amount at-risk in JWH is $60,000.
a.What is Tyrone' deductible loss in 2016? What is Tyrone's at-risk amount at the end of 2016?
b.In 2017, JWH has a taxable income of $100,000. What is the effect on Tyrone's 2017 income? What is Tyrone's at-risk amount at the end of 2017?

Accepted Answer

The answer of Tyrone is the president of JWH Manufacturing...

Question 10

Why did Congress enact the at-risk rules?

Accepted Answer

To disallow the deduction of artificial

Question 11

During the current year,Schmidt Corporation has operating income of $75,000 and a net capital loss of $25,000.What is Schmidt's taxable income?

Accepted Answer

A) $- 0 - 
B) $50,000 
C) $72,000 
D) $75,000 
E) $90,000 
A) $- 0 - 
B) $50,000 
C) $72,000 
D) $75,000 
E) $90,000

Question 12

Match each statement with the correct term below.
-Small business stock

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

Brent is single and owns a passive activity that has a basis of $25,000 and a suspended passive loss of $8,000.He acquired the passive activity in 2010.Brent's taxable income from active and portfolio income is $85,000,and he has no other capital gains or losses for the year.
a.What is the effect on Brent's taxable income if he sells the passive activity for $42,000?
b.What is the effect on Brent's taxable income if he sells the passive activity for $13,000?
c.What is the effect on Brent's taxable income if he dies this year while the fair market value of the passive activity is $30,000?
d.What is the effect on Brent's taxable income if he dies this year while the fair market value of the passive activity is $18,000?
e.What is the effect on Brent's taxable income if he gives the passive activity to his brother Norm when the fair market value of the passive activity is $30,000?

Accepted Answer

The answer of Brent is single and owns a passive...

Question 14

Tim owns 3 passive investments.During the current year,he has the following income and loss from each activity:   ​
What is the amount of suspended loss allocated to Activity 2?

Accepted Answer

A) $- 0 - 
B) $1,800 
C) $3,000 
D) $4,200 
E) $6,000 
A) $- 0 - 
B) $1,800 
C) $3,000 
D) $4,200 
E) $6,000

Question 15

Material participation requires that an individual participates in an activity for more than 200 hours per year or spends more than 50 hours a year in the activity and the time spent is more than anyone else spends on the activity.

Accepted Answer

A) True 
 B)False

Question 16

During the current year,Terry has a short-term capital loss of $9,000 and a long-term capital gain of $3,000.Due to these transactions Terry reports

Accepted Answer

A) A capital loss deduction of $3,000 and a loss carryforward of $3,000 
B) A capital loss deduction of $3,000 and a loss carryforward of $6,000. 
C) A capital loss deduction of $9,000. 
D) A capital gain of $3,000 and a loss carryforward of $9,000. 
E) A capital loss deduction of $6,000 
A) A capital loss deduction of $3,000 and a loss carryforward of $3,000 
B) A capital loss deduction of $3,000 and a loss carryforward of $6,000. 
C) A capital loss deduction of $9,000. 
D) A capital gain of $3,000 and a loss carryforward of $9,000. 
E) A capital loss deduction of $6,000

Question 17

Match each statement with the correct term below.
-Capital asset

Accepted Answer

A) Limited to $3,000 annually for individuals. 
B) When an asset is disposed of for less than its basis. 
C) An excess of business deductions over business income. 
D) A trade or business in which the taxpayer is not a material participant. 
E) A loss that results from some sudden, unexpected, or unusual event.
F)Any asset that is not a receivable, inventory, or depreciable or real property used in a trade or business. 
A) Limited to $3,000 annually for individuals. 
B) When an asset is disposed of for less than its basis. 
C) An excess of business deductions over business income. 
D) A trade or business in which the taxpayer is not a material participant. 
E) A loss that results from some sudden, unexpected, or unusual event.
F)Any asset that is not a receivable, inventory, or depreciable or real property used in a trade or business.

Question 18

Aunt Bea sold some stock she purchased several years ago for $10,000 to her nephew,Andy,for $6,000.
I.If this is Aunt Bea's only stock transaction,she can deduct only $3,000 of the loss.
II.If Andy 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 19

Lisa sells some stock she purchased several years ago for $10,000 to her brother Bart for $8,000.One year later Bart sells the stock for $12,000.The tax consequences to Lisa and Bart are:
​

Accepted Answer

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

Question 20

During the year,Daniel sells both of his personal vehicles.On January 10,he realizes a $9,000 loss on the sale of the first car.On April 5,he realizes a $1,000 gain on the sale of the second car.Assume Daniel's salary for the year is $50,000,and he has no other income.What is Daniel's Adjusted Gross Income?

Accepted Answer

A) $40,000 
B) $41,000 
C) $42,000 
D) $50,000 
E) $51,000 
A) $40,000 
B) $41,000 
C) $42,000 
D) $50,000 
E) $51,000

Discuss the difference(s)between the real estate professional exception and the active participation exception when dealing with rental properties.

Which of the following must be classified as "portfolio income?" I.Dividend income from an investment in Lincoln Corp.common stock. II.Royalty income from the ownership of the mineral rights on land.The taxpayer does not share the expenses with the extraction company.

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

Which of the following must be classified as "portfolio income?" I.Interest income on CDs from First National Bank. II.Loss realized from the sale of one-half of his stock shares in Lockleed Corp.Lockleed is qualified small business stock.

Why did Congress enact the at-risk rules?

During the current year,Schmidt Corporation has operating income of $75,000 and a net capital loss of $25,000.What is Schmidt's taxable income?

Match each statement with the correct term below. -Small business stock

Tim owns 3 passive investments.During the current year,he has the following income and loss from each activity: What is the amount of suspended loss allocated to Activity 2?

Material participation requires that an individual participates in an activity for more than 200 hours per year or spends more than 50 hours a year in the activity and the time spent is more than anyone else spends on the activity.

During the current year,Terry has a short-term capital loss of $9,000 and a long-term capital gain of $3,000.Due to these transactions Terry reports

Match each statement with the correct term below. -Capital asset

Aunt Bea sold some stock she purchased several years ago for $10,000 to her nephew,Andy,for $6,000. I.If this is Aunt Bea's only stock transaction,she can deduct only $3,000 of the loss. II.If Andy sells the stock for $10,000,his taxable gain is $4,000.

Lisa sells some stock she purchased several years ago for $10,000 to her brother Bart for $8,000.One year later Bart sells the stock for $12,000.The tax consequences to Lisa and Bart are:

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

Discuss the difference(s)between the real estate professional exception and the active participation exception when dealing with rental properties.

Which of the following must be classified as "portfolio income?" I.Dividend income from an investment in Lincoln Corp.common stock. II.Royalty income from the ownership of the mineral rights on land.The taxpayer does not share the expenses with the extraction company. ​

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

Which of the following must be classified as "portfolio income?" I.Interest income on CDs from First National Bank. II.Loss realized from the sale of one-half of his stock shares in Lockleed Corp.Lockleed is qualified small business stock. ​

Why did Congress enact the at-risk rules?

During the current year,Schmidt Corporation has operating income of $75,000 and a net capital loss of $25,000.What is Schmidt's taxable income?

Match each statement with the correct term below. -Small business stock

Tim owns 3 passive investments.During the current year,he has the following income and loss from each activity: ​ What is the amount of suspended loss allocated to Activity 2?

Material participation requires that an individual participates in an activity for more than 200 hours per year or spends more than 50 hours a year in the activity and the time spent is more than anyone else spends on the activity.

During the current year,Terry has a short-term capital loss of $9,000 and a long-term capital gain of $3,000.Due to these transactions Terry reports

Match each statement with the correct term below. -Capital asset

Aunt Bea sold some stock she purchased several years ago for $10,000 to her nephew,Andy,for $6,000. I.If this is Aunt Bea's only stock transaction,she can deduct only $3,000 of the loss. II.If Andy sells the stock for $10,000,his taxable gain is $4,000. ​

Lisa sells some stock she purchased several years ago for $10,000 to her brother Bart for $8,000.One year later Bart sells the stock for $12,000.The tax consequences to Lisa and Bart are: ​

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

Which of the following must be classified as "portfolio income?" I.Dividend income from an investment in Lincoln Corp.common stock. II.Royalty income from the ownership of the mineral rights on land.The taxpayer does not share the expenses with the extraction company.

Which of the following must be classified as "portfolio income?" I.Interest income on CDs from First National Bank. II.Loss realized from the sale of one-half of his stock shares in Lockleed Corp.Lockleed is qualified small business stock.

Tim owns 3 passive investments.During the current year,he has the following income and loss from each activity: What is the amount of suspended loss allocated to Activity 2?

Aunt Bea sold some stock she purchased several years ago for $10,000 to her nephew,Andy,for $6,000. I.If this is Aunt Bea's only stock transaction,she can deduct only $3,000 of the loss. II.If Andy sells the stock for $10,000,his taxable gain is $4,000.

Lisa sells some stock she purchased several years ago for $10,000 to her brother Bart for $8,000.One year later Bart sells the stock for $12,000.The tax consequences to Lisa and Bart are: