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Exam 6: Losses and Loss Limitations

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Question 41

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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?

A) $0
B) $30,000
C) $120,000
D) $150,000
E) None of the above

F) B) and C)
G) A) and D)

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Question 42

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In the current year, Don has a $55,000 loss from a business he owns.His at-risk amount at the end of the year, prior to considering the current year loss, is $36,000.He will be allowed to deduct the $55,000 loss this year if he is a material participant in the business.

A) True
B) False

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Question 43

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A taxpayer is considered to be a material participant if he or she spends more than 500 hours in the activity.

Kim dies owning a passive activity with a basis of $75,000, a fair market value of $140,000, and suspended losses of $80,000.All of the $80,000 passive activity loss can be deducted on Kim's final income tax return.

Mary incurred a $20,000 nonbusiness bad debt last year.She also had an $8,000 long-term capital gain last year.Her taxable income for last year was an NOL of $15,000.During the current year, she unexpectedly collected $12,000 on the debt.How should Mary account for the collection?

John files a return as a single taxpayer.In 2017, he had the following items: ? Salary of $40,000. ? Loss of $65,000 on the sale of § 1244 stock acquired two years ago. ? Interest income of $6,000. Determine John's AGI for 2017.

Maria, who is single, had the following items for 2017: $\begin{array}{l}\begin{array}{lr}\text { Salary } & \$ 80,000 \\\text { Loss on sale of } \S 1244 \text { small business stock acquired 3 years ago } & (60,000) \\\text { Stock acquired } 2 \text { years ago became worthless during the year } & (5,000) \\\text { Long-term capital gain } & 25,000 \\\text { Nonbusiness bad debt } & (15,000) \\\text { Casualty loss on property held } 6 \text { months } & (6,000) \\\text { Casualty gain on property held 4 years } & 4,000\end{array}\\\text { Determine Maria's adjusted gross income for } 2017 \text {. }\end{array}$

Tara owns a shoe store and a bookstore.Both businesses are operated in a mall.She also owns a restaurant across the street and a jewelry store several blocks away.

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?

Discuss the treatment of alimony paid and deductible individual retirement account contributions in computing an individual's net operating loss.

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?

If investment property is stolen, the amount of the loss is the adjusted basis of the property at the time of the theft reduced by $100 and 10% of AGI.

In 2017, Grant's personal residence was completely destroyed by fire.Grant was insured for 100% of his actual loss, and he received the insurance settlement.Grant had adjusted gross income, before considering the casualty item, of $30,000.Pertinent data with respect to the residence follows: $\begin{array} { l r } \text { Cost basis } & \$ 280,000 \\\text { Value before casualty } & 250,000 \\\text { Value after casualty } & - 0 -\end{array}$ What is Grant's allowable casualty loss deduction?

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?

Last year, Amos had AGI of $50,000.Amos also had a diamond ring stolen which cost $20,000 and was worth $17,000 at the time of the theft.He itemized deductions on last year's tax return.In the current year, Amos recovered $17,000 from the insurance company.Therefore, he must include $11,900 in gross income on the tax return for the current year.

Services performed by an employee are treated as being related to a real estate trade or business if the employee performing the services has more than a 5% ownership interest in the employer.

If a taxpayer sells their § 1244 stock at a loss, all of the loss will be ordinary loss.

From January through November, Vern participated for 420 hours as a salesman in a partnership in which he owns a 50% interest.The partnership has four full-time employees.During December, Vern spends 110 hours cleaning the store and painting the walls in order to meet the material participation standards.Vern qualifies as a material participant.

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.

Mary Jane participates for 100 hours during the year in an activity she owns.She has no employees and is the only participant in the activity.The activity is a significant participation activity.