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Exam 6: Losses and Loss Limitations

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Question 31

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Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a limited partnership, and a $26,000 passive activity loss from a real estate rental activity in which she actively participates.If her modified adjusted gross income is $155,000, how much of the $26,000 loss is deductible?

A) $0
B) $10,000
C) $25,000
D) $26,000
E) None of the above

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

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Question 32

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If an owner participates for more than 500 hours in a bicycle rental activity located at a beach resort, any loss from that activity is treated as an active loss that can offset active income.

A) True
B) False

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Question 33

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Sherri owns an interest in a business that is not a passive activity and in which she has $20,000 at risk.If the business incurs a loss from operations during the year and her share of the loss is $32,000, this loss will be fully deductible.

A nonbusiness bad debt deduction can be taken any year after the debt becomes totally worthless.

An individual may deduct a loss on rental property even if it does not meet the definition of a casualty loss.

A theft loss is taken in the year of the theft.

Jackson Company 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 Jackson is a personal service corporation, it may deduct $34,000 of the passive activity loss.

Josh has investments in two passive activities.Activity A, acquired three years ago, produces income in the current year of $60,000.Activity B, acquired last year, produces a loss of $100,000 in the current year.At the beginning of this year, Josh's at-risk amounts in Activities A and B are $10,000 and $100,000, respectively.What is the amount of Josh's suspended passive activity loss with respect to these activities at the end of the current year?

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.

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?

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.

In 2017, Joanne invested $90,000 for a 20% interest in a limited liability company (LLC) in which she is a material participant.The LLC reported losses of $340,000 in 2017 and $180,000 in 2018.Joanne's share of the LLC's losses was $68,000 in 2017 and $36,000 in 2018.How much of these losses can Joanne deduct?

Josh has investments in two passive activities.Activity A (acquired three years ago) produces income of $30,000 this year, while Activity B (acquired two years ago) produces a loss of $50,000.What is the amount of Josh's suspended loss for the year?

Jed is an electrician.Jed and his wife are accrual basis taxpayers and file a joint return.Jed wired a new house for Alison and billed her $15,000.Alison paid Jed $10,000 and refused to pay the remainder of the bill, claiming the fee to be exorbitant.Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement.Jed was able to collect the judgement but not the remainder of the bill from Alison.What amount of loss may Jed deduct in the current year?

Discuss the computation of NOL remaining to be carried forward after the NOL has been applied in a carryback year.

If an account receivable written off during a prior year is subsequently collected during the current year, the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.

A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.

Leigh, who owns a 50% interest in a sporting goods store, was a material participant in the activity for the last fifteen years.She retired from the sporting goods store at the end of last year and will not participate in the activity in the future.However, she continues to be a material participant in an office supply store in which she is a 50% partner.The operations of the sporting goods store resulted in a loss for the current year and Leigh's share of the loss is $40,000.Leigh's share of the income from the office supply store is $75,000.She does not own interests in any other activities.

Jack owns a 10% interest in a partnership (not real estate) in which his at-risk amount is $42,000 at the beginning of the year.During the year, the partnership borrows $80,000 on a nonrecourse note and incurs a loss of $60,000 from operations.Jack's at-risk amount at the end of the year is $44,000.

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.