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Exam 6: Losses and Loss Limitations

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Question 41

True/False

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All of a taxpayer's tax credits relating to a passive activity can be utilized when the activity is sold at a loss.

A) True
B) False

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Question 42

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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.

A) True
B) False

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Question 43

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Matt has three passive activities and has at-risk amounts in excess of $100,000 for each.During the year, the activities produced the following income (losses) . Matt's suspended losses are as follows:

In 2017, Sarah (who files as single) had silverware worth $10,000 (basis $6,000) stolen from her home.Her insurance company told her that her policy did not cover the theft.In 2017, Sarah's other itemized deductions were $2,000, and she had AGI of $30,000.In February 2019, Sarah's insurance company decided that Sarah's policy did cover the theft of the silverware and they paid Sarah $5,000.Determine the tax treatment of the $5,000 received by Sarah during 2019.

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.

On September 3, 2018, Able, a single individual, purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31, 2018, the stock was worth $85,000.On August 15, 2019, Able was notified that the stock was worthless.How should Able report this item on his 2019 tax return?

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.

In the current year, Louise invests $50,000 for a 20% interest in a passive activity.Her share of the loss this year is $10,000.If this is her only passive activity, the $10,000 loss from the activity this year is suspended for use in a future year.

Mary incurred a $20,000 nonbusiness bad debt last year.She also had an $18,000 long-term capital gain last year. Her taxable income for last year was $25,000.During the current year, she unexpectedly collected $12,000 on the debt.How should Mary account for the collection?

The amount of a business loss cannot exceed the amount of the taxpayer's NOL for the taxable year.

Taxpayer's home was destroyed by a storm in the current year in a Federally declared disaster area.If the taxpayer elects to treat the loss as having occurred in the prior year, it will be subject to the 10%-of-AGI reduction based on the AGI of the current year.

A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.

Rick, a computer consultant, owns a separate business (not real estate) in which he participates.He has one employee who works part-time in the business.

In 2019, Wang 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 Wang's share.Which of the following statements is incorrect?

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.

Jim had a car accident in 2019 in which his car was completely destroyed.At the time of the accident, the car had a fair market value of $30,000 and an adjusted basis of $40,000.Jim used the car 100% of the time for business use.He received an insurance recovery of 70% of the value of the car at the time of the accident.If Jim's AGI for the year is $60,000, determine his deductible loss on the car.

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?

In 2019, Wally had the following insured personal casualty losses (arising from one casualty in a Federally declared disaster area) .Wally also had $42,000 AGI for the year before considering the casualty. Wally's casualty loss deduction is:

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.

Joyce owns an activity (not real estate) in which she participates for 100 hours a year; her spouse participates for 450 hours.Joyce qualifies as a material participant.