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Exam 6: Losses and Loss Limitations

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Question 21

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A theft of investment property can create or increase a net operating loss for an individual.

A) True
B) False

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Question 22

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A father cannot claim a loss on his daughter's rental use property.

A) True
B) False

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Question 23

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Rachel acquired a passive activity several years ago.Until 2016, the activity was profitable, and Rachel's at-risk amount at the beginning of 2016 was $300,000.The activity produced losses of $80,000 in 2016, $50,000 in 2017, and $70,000 in 2018.In 2019, the activity produced income of $90,000.How much is Rachel's suspended passive activity loss at the beginning of 2020?

Lucy owns and actively participates in the operations of an apartment complex that produces a $50,000 loss during the year.Her modified AGI is $125,000 from an active business.Disregarding any at-risk amount limitation, she may deduct $25,000 of the loss this year, and the remaining $25,000 is a suspended passive activity loss.

A corporation which makes a loan to a shareholder can have a nonbusiness bad debt deduction.

In 2019, Liam invested $100,000 for a 25% interest in a partnership involved in an activity in which he is a material participant.The partnership reported losses of $340,000 in 2019 and $180,000 in 2020 with Liam's share being $85,000 in 2019 and $45,000 in 2020.How much of the losses can Liam deduct?

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?

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.

In 2017, Amos had AGI of $50,000.In December 2017, Amos also had a diamond ring stolen that cost $20,000 and was worth $17,000 at the time of the theft.He itemized deductions on his 2017 tax return.In 2019, after a variety of investigations, 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.

On July 20, 2018, Matt (who files a joint return) purchased 3,000 shares of Orange Corporation stock (the stock is § 1244 small business stock) for $24,000.On November 10, 2018, Matt purchased an additional 1,000 shares of Orange Corporation stock from a friend for $150,000.On September 15, 2019, Matt sold the 4,000 shares of stock for $120,000.How should Matt treat the sale of the stock on his 2019 return?

Nathan owns Activity A, which produces income, and Activity B, which produces passive activity losses.From a tax planning perspective, Nathan will be better off if Activity A is passive.

A taxpayer can carry an NOL forward indefinitely.

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.

Nonbusiness income for net operating loss purposes includes dividends received.

Ned, a college professor, owns a separate business (not real estate) in which he participates in the current year.He has one employee who works part-time in the business.

Which of the following events would produce a deductible loss in 2019?

Roger owns and actively participates in the operations of an apartment building that produces a $40,000 loss during the year.He has AGI of $150,000 from an active business.He may deduct $25,000 of the loss.

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.

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.

If a noncorporate taxpayer has an excess business loss for the year, it is not allowed.