Question 1

For purposes of the passive loss rules, income is classified into three separate categories. What are the three categories of individual income? Give an example of each.
(1)
(2)
(3)

Accepted Answer

The answer of For purposes of the passive loss rules,...

Question 2

Wages are considered "active income."

Accepted Answer

Wages are considered active income because they are earned through active participation in a job or profession, as opposed to passive income which is earned through investments or rental properties.

Question 3

Thelma works at a liquor store in 2016 and makes $44,000. She also has dividend income of $12,000 and interest income of $1,000. She owns a beach house that gives her $11,000 in net rental income and she owns a stake in a limited partnership that generates a $15,000 loss. What is her adjusted gross income in 2016?

Accepted Answer

The answer of Thelma works at a liquor store in...

Question 4

Choose the correct statement. Passive losses

Accepted Answer

Passive losses often result from the rental of real estate. They may also come from other passive activities, such as limited partnerships or owning a small business in which the taxpayer is not actively involved. Passive losses may only be used to offset other passive income, but any unused losses can be carried forward to future tax years.

Question 5

Moe has a law practice and earns $322,000 which he reports on his Schedule C. His wife, Mindy, works part-time at Wal-Mart and earns $8,300. Mindy does not receive any medical benefits through Wal-Mart. Their 29-year-old daughter, Michelle, who is not a dependent, is working towards earning her Master's degree.
Moe and Mindy pay the following amounts:
How much may Moe and Mindy claim on their tax return as a self-employed health insurance deduction?

Accepted Answer

The answer of Moe has a law practice and earns...

Question 6

Christian, a single taxpayer, acquired a rental house in 2003. The rental house, which Christian actively manages, generated a $15,000 loss in 2016. In addition, Christian owns a limited partnership interest which he acquired in 2008. His share of the partnership loss for 2016 is $10,000. Christian has modified adjusted gross income, before the rental loss and partnership loss, of $134,000.
​
What is the amount of these losses that Christian may deduct in 2016?

Accepted Answer

The answer of Christian, a single taxpayer, acquired a rental...

Question 7

What percentage of medical insurance payments can self-employed taxpayers deduct for adjusted gross income on their 2016 tax returns, assuming their self-employment income exceeds their medical insurance payments? ​

Accepted Answer

Self-employed taxpayers can deduct 100% of their medical insurance payments for adjusted gross income, provided their self-employment income exceeds the payments.

Question 8

Mike and Rose are married and file jointly. Mike earns $45,000 from wages and Rose reports $450 on her Schedule C as an artist. Since Mike's work does not offer health insurance, Rose pays the following health insurance premiums from her business account:
How much can Mike and Rose deduct as self-employed health insurance?

Accepted Answer

The answer of Mike and Rose are married and file...

Question 9

Carey, a single taxpayer, purchased a rental house in 2016, which he actively manages. During 2016, Carey had a loss of $14,000 from the rental house. If Carey's adjusted gross income for 2016 is $138,000 before the rental loss, what is the amount of Carey's allowable deduction for the rental activity for 2016?

Accepted Answer

As an actively managing single taxpayer, Carey is allowed to deduct up to $25,000 of losses from his rental activity against his other income, subject to a phase-out once his AGI exceeds $100,000.

Since Carey's AGI is $138,000 and exceeds the phase-out range, his allowable deduction is reduced by 50 cents for every dollar of AGI over $100,000. Thus, his allowable deduction is calculated as follows:

$25,000 - (($138,000 - $100,000) x 0.5) - $14,000 = $6,000

Question 10

Which of the following is true about the self-employed health insurance deduction?

Accepted Answer

The answer of Which of the following is true about...

Question 11

Arnold purchased interests in two limited partnerships 6 years ago. During 2016, Arnold had income of $22,000 from one of the partnerships. He had a loss from the other partnership of $32,000, salary income of $35,000, and dividend income of $2,000. What is the amount of net passive losses that Arnold may deduct for 2016?

Accepted Answer

The answer of Arnold purchased interests in two limited partnerships...

Question 12

For the current year, Robert, a single taxpayer, earned wages of $235,000 from Big Shot Corporation. He also received interest income of $1,000 from Little Credit Union. Robert had a $9,000 loss from his rental property which he actively manages. $2,000 of income was also reported on his Schedule K-1 from ABC Limited Partnership. Neither the rental property nor the partnership investment has passive losses carried over from prior years. Since Robert is not an active participant in a retirement plan, he decides to contribute $5,500 to his IRA.
a.Calculate Robert's adjusted gross income using the above information.
b.How much is Robert's unallowed loss from his passive investments?
c.What happens to the unallowed passive loss?
d.Calculate Robert's adjusted gross income assuming his wages were only $35,000.

Accepted Answer

The answer of For the current year, Robert, a single...

Question 13

Arnold purchased two rental properties 6 years ago. He actively participates in their management. During 2016, Arnold had income of $22,000 from one of the rentals. He had a loss from the other rental of $32,000, as well as salary income of $35,000, and dividend income of $2,000. What is Arnold's net passive income or loss deduction?

Accepted Answer

Arnold can offset the $22,000 rental income with the $32,000 rental loss, resulting in a $10,000 net passive loss. Since he actively participates, he can deduct up to $25,000 of rental losses against other income, but his loss is only $10,000.

Question 14

Nancy has active modified adjusted gross income before passive losses of $125,000. She has a loss of $15,000 on a rental property she actively manages. How much of the loss is she allowed to deduct against the $125,000 of other income?

Accepted Answer

Nancy is allowed to deduct up to $25,000 in rental losses if her adjusted gross income is below $100,000. However, since her income is $125,000, the amount of the loss deduction is reduced by 50%, or $7,500. Therefore, Nancy is allowed to deduct $15,000 - $7,500 = $7,500 against her other income. The remaining $7,500 of the rental loss can be carried forward to future tax years.

Question 15

Ned has active modified adjusted gross income before passive losses of $160,000. He has a loss of $15,000 on rental property he actively manages. How much of the loss is he allowed to deduct against his other income?

Accepted Answer

The answer of Ned has active modified adjusted gross income...

Question 16

Dividend income is considered "passive income."

Accepted Answer

The answer of Dividend income is considered "passive income."...

Question 17

Warren invested in a limited partnership tax shelter in 2009. During 2016, his losses from the partnership amount to $100,000. If Warren has no passive income, what is the amount of Warren's deduction for passive losses for 2016?

Accepted Answer

Since Warren has no passive income, he cannot deduct any passive losses in 2016. The losses can be carried forward to future years when he has passive income.

Question 18

Ellen supports her family as a self-employed attorney. She reports $90,000 of income on her Schedule C and pays $8,000 for health insurance for her family, $2,500 for dental insurance, $4,000 for health insurance for her 23-year-old daughter who is no longer a dependent, and $3,000 for disability insurance for herself. What is Ellen's self-employed health insurance deduction?

Accepted Answer

The answer of Ellen supports her family as a self-employed...

Question 19

Norm is a real estate professional with a real estate trade or business as defined in the tax law. He has $150,000 of business income and $50,000 of losses from actively managed real estate rentals. How much of the $50,000 in losses is he allowed to claim on his tax return?

Accepted Answer

Norm can claim the full $50,000 in losses from his actively managed real estate rentals because he is a real estate professional. This status allows him to bypass the passive activity loss rules that typically limit loss deductions for real estate activities.

Question 20

​Which of the following can be used to offset a passive loss?

Accepted Answer

The answer of ​Which of the following can be used...

Quiz 4: Business Income and Expenses Part II

For purposes of the passive loss rules, income is classified into three separate categories. What are the three categories of individual income? Give an example of each. (1) (2) (3)