Question 1

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.

Accepted Answer

The answer of During the current year,Ryan performs personal services...

Question 2

Last year,Wanda gave her daughter a passive activity (adjusted basis of $80,000; fair market value of $160,000)with suspended losses of $20,000.In the current year,her daughter realizes income of $10,000 from the activity.What are the tax effects to Wanda and her daughter?

Accepted Answer

The answer of Last year,Wanda gave her daughter a passive...

Question 3

Hugh has four passive activities which generate the following income and losses in the current year.
  How much of the $80,000 net passive loss can Hugh deduct this year? Calculate the suspended losses (by activity).

Accepted Answer

The answer of Hugh has four passive activities which generate...

Question 4

Anne sells a rental house for $100,000 (adjusted basis of $55,000).During her ownership,$60,000 of losses have been suspended under the passive activity loss rules.Determine the tax treatment to Anne on the disposition of the property.

Accepted Answer

The answer of Anne sells a rental house for $100,000...

Question 5

Describe the types of activities and taxpayers that are subject to the at-risk rules.

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The answer of Describe the types of activities and taxpayers...

Question 6

Discuss the treatment given to suspended passive activity losses and credits.What happens to an activity's unused losses and credits when the activity is sold?

Accepted Answer

The answer of Discuss the treatment given to suspended passive...

Question 7

Purple Corporation,a personal service corporation,earns active income of $600,000.The corporation receives $60,000 in dividends and incurs a loss of $100,000 from an investment in a passive activity acquired three years ago.What is Purple's income after considering the passive investment?

Accepted Answer

The answer of Purple Corporation,a personal service corporation,earns active income...

Question 8

Sarah purchased for $100,000 a 10% interest in a business venture that is not subject to the passive activity rules.During the first year,her share of the entity's loss was $120,000.At the beginning of the second year,the entity obtained $800,000 of recourse financing.During the second year,Sarah withdrew cash of $20,000,and her share of the entity's loss was $25,000.Calculate the amount of loss that Sarah may claim in each of the two years and determine her at-risk amount at the end of each year.

Accepted Answer

The answer of Sarah purchased for $100,000 a 10% interest...

Question 9

Lindsey,an attorney,earns $125,000 from her law practice in the current year.In addition,she receives $50,000 in dividends and interest during the year.Further,she incurs a loss of $40,000 from an investment in a passive activity.What is Lindsey's AGI for the year after considering the passive investment?

Accepted Answer

The answer of Lindsey,an attorney,earns $125,000 from her law practice...

Question 10

Discuss the tax treatment of non-reimbursed losses of an employee in connection with a trade or business.

Accepted Answer

The answer of Discuss the tax treatment of non-reimbursed losses...

Question 11

Orange Corporation,a closely held (non-personal service)C corporation,earns active income of $300,000 in the current year.The corporation also receives $35,000 in dividends and incurs a loss of $50,000 from an investment in a passive activity.What is Orange's income for the year after considering the passive investment?

Accepted Answer

The answer of Orange Corporation,a closely held (non-personal service)C corporation,earns...

Question 12

Lloyd,a life insurance salesman,earns a $400,000 salary in the current year.As he works only 30 hours per week in this job,he has time to participate in several other businesses.He owns an ice cream parlor and a car repair shop in Tampa.He also owns an ice cream parlor and a car repair shop in Portland and a car repair shop in St.Louis.A preliminary analysis on December 1 of the current year shows projected income and losses for the various businesses as follows:
  Lloyd has full-time employees at each of the five businesses listed above.Review all possible groupings for Lloyd's activities.Which grouping method and other strategies should Lloyd consider that will provide the greatest tax advantage?

Accepted Answer

The answer of Lloyd,a life insurance salesman,earns a $400,000 salary...

Question 13

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 loss rules?

Accepted Answer

The answer of Ken has a $40,000 loss from an...

Question 14

In 2012,Kelly earns a salary of $200,000 and invests $40,000 for a 20% interest in a partnership not subject to the passive loss rules.Through the use of $800,000 of nonrecourse financing,the partnership acquires assets worth $1 million.The activity produces a loss of $150,000,of which Kelly's share is $30,000.In 2013,Kelly's share of the loss from the partnership is $15,000.How much of the loss from the partnership can Kelly deduct?

Accepted Answer

The answer of In 2012,Kelly earns a salary of $200,000...

Question 15

In 2013,Emily invests $120,000 in a limited partnership that is not a passive activity.During 2013,her share of the partnership loss is $90,000.In 2014,her share of the partnership loss is $50,000.How much can Emily deduct in 2013 and 2014?

Accepted Answer

The answer of In 2013,Emily invests $120,000 in a limited...

Question 16

What special passive loss treatment is available to real estate activities?

Accepted Answer

The answer of What special passive loss treatment is available...

Question 17

Vail owns interests in a beauty salon,a natural foods store,and a tanning salon.Several full-time employees work at each of the enterprises.As of the end of November of the current year,Vail has worked 180 hours in the beauty salon,220 hours at the natural foods store,and 80 hours at the tanning salon.These three ventures collectively will produce income.Vail also owns one other passive activity that is producing a loss (a limited partnership in which she has reported no participation).How should Vail plan her activities for the remainder of the year?

Accepted Answer

The answer of Vail owns interests in a beauty salon,a...

Question 18

List the taxpayers that are subject to the passive loss rules and summarize the general impact of these rules on these taxpayers.

Accepted Answer

The answer of List the taxpayers that are subject to...

Question 19

Pat sells a passive activity for $100,000 that has an adjusted basis of $55,000.During the years of her ownership,$60,000 of losses have been incurred that were suspended under the passive activity loss rules.In addition,the passive activity generated tax credits of $10,000 that were not utilized and suspended.Determine the tax treatment to Pat on the disposition of the property.

Accepted Answer

The answer of Pat sells a passive activity for $100,000...

Question 20

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

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The answer of Identify how the passive loss rules broadly...

Quiz 6: Losses and Loss Limitations