Deck 7: Losses: Deductions and Limitations

Question 1

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

Answer 1

K

Question 2

Match each statement with the correct term below.
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.
Limited partnership

Answer 2

L

Question 3

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

Answer 3

C

Question 4

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

Question 5

A transaction loss occurs when an asset is disposed of at less than its basis.

Question 6

Match each statement with the correct term below.
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.
Capital loss

Question 7

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

Question 8

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

Question 9

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

Question 10

Match each statement with the correct term below.
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.
Casualty loss

Question 11

Match each statement with the correct term below.
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.
Passive activity

Question 12

Match each statement with the correct term below.
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.
Material participant

Question 13

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

Question 14

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

Question 15

Match each statement with the correct term below.
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.
Net operating loss

Question 16

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

Question 17

Match each statement with the correct term below.
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.
Business casualty loss

Question 18

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

Question 19

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

Question 20

An operating loss occurs when an entity's deductions exceeds the income generated for the period.

Question 21

Leon is allowed to deduct all the current and suspended losses on his passive activity if he sells his entire interest in the passive activity during the year.

Question 22

Carmen purchased a business for $150,000 by investing $40,000 of her own funds and borrowing $110,000 from Local National Bank.Carmen signed the note payable as a personal guarantor.In the first year of operations the business had an operating loss of $120,000.During the second year,the business has an operating loss of $45,000.How much of the year two loss is deductible against Carmen's income from other business activities?
Assume that Carmen materially participates in the business.

A)$ - 0 -
B)$ 15,000
C)$ 30,000
D)$ 45,000
E)$120,000

Question 23

A corporation has a net capital loss.The significance of a net capital loss in 2013 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.

Question 24

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.

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

Question 25

Virginia owns a business that rents power equipment to construction companies.Despite maintaining,delivering,and picking up the equipment,Virginia's business is passive since it is a rental activity.

Question 26

Sullivan,a pilot for Northern Airlines,has adjusted gross income of $92,000 before considering the following losses.The passive activity rules disallow the deduction for a loss in which of the following?
I)Sullivan has a $4,500 loss from his ownership interest in Cowco,a feeder-cattle limited partnership.Sullivan is a general partner and is responsible for day-to-day management decisions.
II)Sullivan has a $7,000 loss from his ownership interest in Swineco,a feeder-pig limited partnership.Sullivan is a limited partner.

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

Question 27

A closely held corporation cannot offset net passive losses against income of the business.

Question 28

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.

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

Question 29

The Baskerville Corporation has a net $6,500 capital loss during the current taxable year.They will be able to deduct $3,000 this year and carries the remaining $3,500 forward.

Question 30

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.

Question 31

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.

Question 32

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.

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

Question 33

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.

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

Question 34

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

Question 35

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

Question 36

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.

Question 37

The term tax shelter refers to investment property that involves residential and commercial real estate.

Question 38

Baker Corporation suffers a net operating loss (NOL)of $65,000 in 2013.Baker was incorporated in 2011.Baker had a NOL of $20,000 in 2011 and taxable income of $35,000 in 2012.The corporation expects a taxable income of $200,000 in 2014.What valid alternatives are available to Baker concerning the $50,000 loss?
I)Baker can carryback the loss to 2014 and will receive a refund of $2,250.
II)Baker can elect to carryforward the loss and expect to receive tax savings of $19,500.

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

Question 39

Any corporate capital loss not used in the current year can be carried back 2 years and carried forward 20 years to offset capital gains in those years.

Question 40

Dwight owns an apartment complex that has a $30,000 loss.His adjusted gross income is $85,000 before the loss.Since he qualifies as an active participant he may deduct $25,000.

Question 41

During the year,Aimee reports $30,000 of active business income,$15,000 of income from passive activity X,and a $25,000 loss from passive activity Y.Determine the tax consequences of these events.
I)The $15,000 income from activity X can offset $15,000 of the loss from activity Y.
II)Any passive loss that is not deducted in the current year is suspended.

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

Question 42

Janine is an engineering professor at Southern College.Her annual salary is $110,000.She owns two 3-unit apartment buildings near the university.Because of the proximity to campus,Janine actively manages the property.During the current year,the rental of the property produced a $29,500 loss.How much of the loss may Janine deduct for the current year?

A)$ - 0 -
B)$14,750
C)$20,000
D)$25,000
E)$29,500

Question 43

Nelson is the owner of an apartment complex.He actively participates in the management of the building.During the current year,it generates a taxable loss of $33,000.Nelson's other sources of income are salary of $148,000 and interest of $12,000.What is Nelson's allowable loss from the apartment?

A)$ - 0 -
B)$ 1,000
C)$12,000
D)$25,000
E)$33,000.

Question 44

If a taxpayer has the following for the current year:
$\begin{array}{lrrr}&\text { Active } & \text { Portfolio } & \text { Passive } \\&\text { Income }&\text { Income }&\text { Income }\\\text { Income } & \$ 75,000 & \$ 22,000 & \$ 55,000 \\\text { Deductions }&(45,000) &(16,000) &(110,000)\\\text { Income(Loss) } & \$ 30,000 & \$ 6,000 & \$(55,000)\end{array}$
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.

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

Question 45

Pedro owns a 50% interest in a limited partnership that operates an apartment complex.During the current year,the partnership generates a taxable rental loss of $42,000.Pedro's other sources of income are salary of $55,000 and interest of $18,000.What is Pedro's allowable loss from the apartment?

A)$ - 0 -
B)$18,000
C)$21,000
D)$25,000
E)None of the above.

Question 46

A taxpayer had the following for the current year:
$\begin{array}{lrrr}&\text { Active } & \text { Portfolio } & \text { Passive } \\&\text { Income }&\text { Income }&\text { Income }\\\text { Income } & \$ 75,000 & \$ 22,000 & \$ 55,000 \\\text { Deductions }&(45,000) &(16,000) &(110,000)\\\text { Income(Loss) } & \$ 30,000 & \$ 6,000 & \$(55,000)\end{array}$
I.If the taxpayer is a closely held corporation,taxable income from the three activities is income of $6,000.
II.If the taxpayer is an individual and the passive income is not related to a rental real estate activity,taxable income is $36,000.

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

Question 47

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.

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

Question 48

Susan is the owner of a 35-unit apartment complex.She spends 950 hours a year managing the property.In addition,she works part-time for a mortgage company.She spends 1,150 hours a year as a bookkeeper at the mortgage company.The apartment complex generated a loss of $32,000,and Susan's adjusted gross income for the current year,before considering the apartment complex,is $48,000.How much of the loss can Susan deduct?

A)$ - 0 -
B)$14,476
C)$16,727
D)$25,000
E)$32,000

Question 49

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.

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

Question 50

If an individual is not a material participant,a rental activity is considered passive.However,certain rental activities are not deemed to be rentals for passive loss purposes even if the individual is not a material participant.Which of the following is not excluded from the passive loss rules?

A)Golf cart rentals.
B)Hotel rooms.
C)Jet ski rentals.
D)Apartment rentals.
E)Construction equipment rentals.

Question 51

During 2013,Pamela worked two "jobs." She performed financial consulting activities for 1,000 hours and real estate development and rental activities for 1,200 hours.Her real estate development and rental activities produced a loss of $35,000.Her financial consulting generated a net business income of $40,000.How much of the loss can Pamela deduct against her financial consulting income?

A)$ - 0 -
B)$17,500
C)$25,000
D)$35,000
E)$40,000

Question 52

During the current year,Alyssa incurred a net loss of $27,500 from a 5 percent interest in a partnership that operated and managed an office building.Alyssa had adjusted gross income from other sources of $110,000 and spent 67 hours assisting in the management of the building.Determine Alyssa's total adjusted gross income for the current year.

A)$ 82,500
B)$ 90,000
C)$100,000
D)$105,000
E)$110,000

Question 53

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.

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

Question 54

Maria,an engineer,has adjusted gross income of $167,000 before considering the following losses.The passive activity rules disallow the deduction for the loss in which of the following?
I)Maria has a $21,000 loss from her ownership of Family Apartment Village,a low-income housing project.
II)Maria owns and actively participates in managing a rental house across the street from East State College.This activity generates a $7,000 loss in the current year.

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

Question 55

Nancy 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 $27,000.Nancy's other sources of income are salary of $52,000 and interest of $21,000.What is Nancy's allowable loss from the apartment?

A)$ - 0 -
B)$18,000
C)$25,000
D)$27,000
E)None of the above.

Question 56

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.

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 57

Salvador owns a passive activity that has a basis of $44,000 and a suspended loss of $18,000.Salvador's taxable income from active and portfolio income is $55,000.If Salvador's sells the passive activity for $56,000 how will he report the transaction on his tax return?
I)Salvador will report an ordinary loss of $18,000.
II)Salvador will report a capital gain of $12,000.

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

Question 58

Jose,Mahlon,and Eric are partners in New Communications Partnership.Jose owns a 50% interest,Mahlon owns a 35% interest,and Eric owns a 15% interest.During the current year (the first year of operation for the enterprise),the business has a loss.Although the partnership is established as a general partnership,Jose functions as the manager and performs all of the day-to-day duties of a chief operating officer.Mahlon and Eric are merely investors who receive monthly reports about the business.At the close of the current tax year,each partner will receive a share of the partnership loss.Which of the partners will be able to deduct his (their)share of the partnership loss?
I)Jose
II)Mahlon
III)Eric

A)Mahlon
B)Jose, Mahlon, and Eric
C)Jose
D)Jose and Mahlon
E)Mahlon and Eric

Question 59

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?

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

Question 60

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.

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

Question 61

Ricardo owns interests in 3 passive activities: A,B,and C.During the current year,activity A realizes income of $8,000 while activities B and C realize losses of $16,000 and $24,000,respectively.Determine the amount of suspended loss attributable to activity C.

A)$ - 0 -
B)$ 8,000
C)$12,800
D)$19,200
E)$24,000

Question 62

Anna owns a passive activity that has a basis of $30,000 and a suspended loss of $7,000.Anna gifts the passive activity to her daughter Patricia when the property has a fair market value of $42,000.
I)Anna will report an ordinary loss of $7,000.
II)Patricia's basis in the passive activity is $30,000.

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

Question 63

Which of the following events is a "casualty" loss?
I)Lightning damage.
II)Loss of the topsoil on a farm from a flood.

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

Question 64

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.

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

Question 65

Karl has the following income (loss)during the current year:
$\begin{array}{lr}\text { Net business income } & \$ 45,500 \\\text { Dividends and interest } & 12,000 \\\text { Actively managed rental property } & (34,000)\end{array}$
What is Karl's adjusted gross income for this year?

A)$23,500
B)$31,400
C)$32,500
D)$45,500
E)$57,500

Question 66

Bowden is a single individual and has the following income (loss)for the current tax year:
$\begin{array}{lr}\text { Salary } & \$ 85,000 \\\text { Dividends and interest } & 24,000 \\\text { Actively managed rental property } & (23,000)\end{array}$
What is Bowden's adjusted gross income for this year?

A)$ 85,000
B)$ 86,000
C)$ 88,500
D)$ 89,500
E)$109,000

Question 67

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?

A)$ 95,550
B)$105,500
C)$110,000
D)$115,500
E)$120,000

Question 68

"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.

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

Question 69

Tim owns 3 passive investments.During the current year,he has the following income and loss from each activity:
$\begin{array}{lc}\text { Activity 1 } & \$(7,000) \\\text { Activity 2 } & (3,000) \\\text { Activity } 3 & 4,000\end{array}$
What is the amount of suspended loss allocated to Activity 2?

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

Question 70

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?

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

Question 71

Mary and Philip purchased an apartment building in January 2004,which they actively manage.During the current year,the apartment building generates a loss of $35,000.Their other income is as follows:
$\begin{array}{lr}\text { Salaries } & \$ 80,000 \\\text { Dividends and interest } & 8,000 \\\text { Loss from limited partnership acquired in } 1999 & (4,000)\end{array}$
What is Mary and Philip's adjusted gross income?

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

Question 72

Rose has an adjusted gross income of $130,000.Not included in her adjusted gross income is a $15,000 loss from a passive activity.Which of the following statements regarding the effect of the passive loss on his adjusted gross income is/are correct?
I)If the activity is rental real estate and Rose meets the real estate professional exception,she can deduct the $15,000 loss for adjusted gross income.
II)If the activity is rental real estate and Rose is an active participant,she can deduct $5,000 of the loss for adjusted gross income.

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

Question 73

Ling owns 3 passive investments.During the last two years,she has the following income and loss from each activity:
$\begin{array}{lrr} & 2012 & 2013 \\\text { Activity 1 } & \$(14,000) & \$(6,000) \\\text { Activity 2 } & (6,000) & (1,000) \\\text { Activity 3 } & 8,000 & 12,000\end{array}$
At the end of 2013 what is the amount of suspended loss allocated to Activity 2?

A)$1,695
B)$1,815
C)$5,185
D)$5,305
E)$7,000

Question 74

Loren owns three passive activities that had the following results for the current year:
$\begin{array}{ll}\text { Passive Activity A } & \$ 25,000 \\\text { Passive Activity B } & (10,000) \\\text { Passive Activity C } & (40,000)\end{array}$
If none of the passive activities are rental real estate activities,what is the amount of suspended loss attributable to Activity C?

A)$ - 0 -
B)$18,750
C)$20,000
D)$25,000
E)$40,000

Question 75

Judy and Larry are married and their combined salaries for the current year are $115,000.They actively participate in the rental of two houses.For the current year they have the following losses:
$$\begin{array} { l r } & \text { Income } / ( \text { Loss } ) \\\text { Limited Partnership A } & \$ ( 5,000 ) \\\text { Limited Partnership B } & 8,000 \\\text { Rental house X } & ( 5,000 ) \\\text { Rental house Y } & ( 2,000 )\end{array}$$
What is Judy and Larry's adjusted gross income?

A)$108,000
B)$111,000
C)$114,000
D)$115,000
E)$118,000

Question 76

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.

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

Question 77

Sarah owns a passive activity that has a suspended loss of $18,000.The activity has a fair market value of $35,000 and her adjusted basis in the activity is $20,000.
I)If Sarah sells the activity,she is allowed to deduct the $18,000 suspended loss.
II)If Sarah gifts the activity,she is only be allowed to deduct $15,000 of the suspended loss.

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

Question 78

"Active participation" and "real estate professional" are both exceptions to the general rule for passive activity losses with rental real estate.
I)A taxpayer qualifying under both exceptions is limited to a maximum annual deduction of $25,000.
II)Active participation results from owning at least a 10% interest in the activity and arranging for repairs and maintenance and collecting rents.

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

Question 79

Mark has an adjusted gross income of $154,000.Not included in his adjusted gross income is a $16,000 loss from a passive activity.Which of the following statements regarding the effect of the passive loss on his adjusted gross income is/are correct?
I)If the activity does not involve rental real estate,he can only deduct the loss as a miscellaneous itemized deduction.
II)If the activity is rental real estate and Mark is an active participant,he can deduct the $16,000 loss for adjusted gross income.

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

Question 80

Linda owns three passive activities that had the following results for the current year:
$\begin{array}{lc}\text { Passive Activity A } & \$(4,500) \\\text { Passive Activity B } & 20,000 \\\text { Passive Activity C } & (25,500)\end{array}$
If none of the passive activities are rental real estate activities,what is the amount of suspended loss attributable to Activity A?

A)$ - 0 -
B)$ 1,500
C)$ 4,500
D)$ 8,500
E)$10,000