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Exam 11: Investor Losses

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Question 1

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In 2017,Emily invests $120,000 in a limited partnership that is not a passive activity.During 2017,her share of the partnership loss is $90,000.In 2018,her share of the partnership loss is $50,000.How much can Emily deduct in 2017 and 2018?

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Although the passive activity loss rules do not apply,the at-risk rules limit Emily's deductions.She can deduct $90,000 in 2017 and her at-risk amount will be reduced to $30,000 ($120,000 - $90,000 deducted).She will be limited to a $30,000 deduction in 2018 unless she increases her amount at risk.For example,if Emily invests an additional $20,000 in 2018,her at-risk amount would be $50,000 ($30,000 balance + $20,000 additional investment),and she would be able to deduct the entire $50,000 loss in 2018.

Question 2

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In the current year,Kelly had a $35,000 loss from a real estate rental activity in which she is a 10% owner.If she is an active participant and if her modified AGI is $100,000,she can deduct $25,000 of the loss.

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B) False

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Question 3

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​During the current year,Ryan performs personal services as follows: 700 hours in his management consulting practice,650 hours in a real estate development business,and 550 hours in an apartment leasing operation.He expects that losses will be realized from the two real estate ventures while his consulting practice will show a profit.Ryan files a joint return with his wife whose salary is $125,000.Discuss the character and treatment of the income and losses generated by these activities.

Jenny spends 32 hours a week,50 weeks a year,operating a bicycle rental store that she owns at a resort community.She also owns a music store in another city that is operated by a full-time employee.Jenny spends 140 hours per year working at the music store.She elects not to group them together as a single activity under the "appropriate economic unit" standard.

Maria,who owns a 50% interest in a restaurant,has been a material participant in the restaurant activity for the last 20 years.She retired from the restaurant at the end of last year and will not participate in the restaurant activity in the future.However,she continues to be a material participant in a retail store in which she is a 50% partner.The restaurant operations produce a loss for the current year,and Maria's share of the loss is $80,000.Her share of the income from the retail store is $150,000.She does not own interests in any other activities.

Individuals with modified AGI of $100,000 can deduct against active or portfolio income losses of up to $25,000 from real estate rental activities in which they actively participate.

Gray Company,a closely held C corporation,incurs a $50,000 loss on a passive activity during the year.The company has active income of $34,000 and portfolio income of $24,000.If Gray is not a personal service corporation,it may deduct $34,000 of the passive activity loss.

Eric makes an installment sale of a passive activity having suspended losses of $40,000.He collects 25% of the sales price in the current year,and will collect 25% in each of the next three years.Eric can deduct $10,000 of the passive activity loss this year.

Art's at-risk amount in a passive activity was $60,000 at the beginning of 2016.His loss from the activity in 2016 is $80,000,and he had no passive activity income during the year.Art had $20,000 of passive activity income from the activity in 2017.Under the passive activity loss rules,Art's suspended loss at the end of 2017 is:

White Corporation,a closely held personal service corporation,has $150,000 of passive activity losses,$120,000 of active business income,and $30,000 of portfolio income.How much of the passive activity loss can White Corporation deduct?

Ken has a $40,000 loss from an investment in a partnership in which he does not materially participate.He paid $30,000 for his interest.How much of the loss is disallowed by the at-risk rules? How much is disallowed by the passive activity loss rules?

Dena owns interests in five businesses and has full-time employees in each business.She participates for 100 hours in Activity A,120 hours in Activity B,130 hours in Activity C,140 hours in Activity D,and 125 hours in Activity E.

Ahmad owns four activities.He participated for 120 hours in Activity A,150 hours in Activity B,140 hours in Activity C,and 100 hours in Activity D.Which of the following statements is correct?

Tonya owns an interest in an activity (not real estate) that converted recourse financing to nonrecourse financing.Recapture of previously allowed losses is required if Tonya's at-risk amount is reduced below zero as a result of the debt restructuring.

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

Vic's at-risk amount in a passive activity is $200,000 at the beginning of the current year.His current loss from the activity is $80,000.Vic had no passive activity income during the year.At the end of the current year:

In 2017,Arnold invests $80,000 for a 20% interest in a partnership in which he is a material participant.The partnership incurs a loss with $100,000 being Arnold's share.Which of the following statements is incorrect?

Ned,a college professor,owns a separate business (not real estate) in which he participates in the current year.He has one employee who works part-time in the business.

Match the term with the correct response. More than one response may be correct. a. Taxpayer devotes time aggregating more than 500 hours in all significant participation activities during the year. b. Participates in making management decisions in a significant and bonafide sense. c. One in which the individual's participation equals more than 100 hours during the year. d. Taxpayer devotes time in the activity which constitutes substantially all of the participation in the activity of all individuals. e. Both options a. and d. are correct. f. No correct choice is given. -Treatment of an installment sale of a passive activity.

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 activity income in the current or prior years,her suspended passive activity loss from the activity is: