CHAPTER 11 INVESTOR LOSSES

1. Eric makes an installment sale of a passive activity having suspended losses of $40,000. He collects 25% of the sales price in the current year, and will collect 25% in each of the next three years. Eric can deduct $10,000 of the passive loss this year.

a. True

b. False

2. David earned investment income of $20,000, incurred investment interest expense of $12,000, and other investment expenses of $9,000 during the current year. David can deduct $12,000 of investment interest for this year.

a. True

b. False

3. Investment income can include gross income from interest, dividends, annuities, and royalties not derived in the ordinary course of a trade or business; income from a passive activity; and income from a real estate activity in which the taxpayer actively participates.

a. True

b. False

4. Bob realized a long-term capital gain of $8,000. In calculating his net investment income, Bob may elect to include the gain in investment income.

a. True

b. False

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5. Harry earned investment income of $18,500, incurred investment interest expense of $15,500, and other investment expenses of $9,000 during the current year. Harry may deduct $9,500 of investment interest expense this year and carry forward $6,000 to future years.

a. True

b. False

6. In 2014, Arnold 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 Arnold’s share. Which of the following statements is incorrect?

a. Since Arnold has only $80,000 of capital at risk, he cannot deduct any more than this amount against his other income.

b. Arnold’s nondeductible loss of $20,000 can be carried over and used in future years (subject to the at­risk provisions).

c. If Arnold has taxable income of $40,000 from the partnership in 2015 and there are no other transactions that affect his at-risk amount, he can use all of the $20,000 loss carried over from 2014.

d. Arnold’s $100,000 loss is nondeductible in 2014 and 2015 under the passive loss provisions.

e. All of the statements are correct.

7. Last year, Ted invested $100,000 for a 50% interest in a partnership in which he was a material participant. The partnership incurred a loss, and Ted’s share was $150,000. Which of the following statements is incorrect?

a. Ted’s nondeductible loss of $50,000 can be carried over and used in the future (subject to the at­risk provisions).

b. If Ted has taxable income of $50,000 from the partnership in the current year and no other transactions that affect his at-risk amount, he can use all of the $50,000 loss carried over.

c. Since Ted has only $100,000 of capital at risk, he cannot deduct more than $100,000 against his other income.

d. None of the above is incorrect.

8. In 2014, 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 2014 and $180,000 in 2015. Joanne’s share of the LLC’s losses was $68,000 in 2014 and $36,000 in 2015. How much of these losses can Joanne deduct?

a. $68,000 in 2014; $36,000 in 2015.

b. $68,000 in 2014; $22,000 in 2015.

c. $0 in 2014; $0 in 2015.

d. $68,000 in 2014; $0 in 2015.

e. None of the above.

9. In 2014, Kipp invested $65,000 for a 30% interest in a partnership conducting a passive activity. The partnership reported losses of $200,000 in 2014 and $100,000 in 2015, Kipp’s share being $60,000 in 2014 and $30,000 in 2015. How much of the losses from the partnership can Kipp deduct assuming he owns no other investments and does not participate in the partnership’s operations?

a. $0 in 2014; $30,000 in 2015.

b. $60,000 in 2014; $30,000 in 2015.

c. $60,000 in 2014; $5,000 in 2015.

d. $60,000 in 2014; $0 in 2015.

e. None of the above.

10.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?

a. $0.

b. $18,000.

c. $20,000.

d. $50,000.

e. None of the above.

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11.Carl, a physician, earns $200,000 from his medical practice in the current year. He receives $45,000 in dividends and interest during the year as well as $5,000 of income from a passive activity. In addition, he incurs a loss of $50,000 from an investment in a passive activity. What is Carl’s AGI for the current year after considering the passive investment?

a. $195,000.

b. $200,000.

c. $240,000.

d. $245,000.

e. None of the above.

12.Nell sells a passive activity with an adjusted basis of $45,000 for $105,000. Suspended losses attributable to this property total $45,000. The total gain and the taxable gain are:

a. $60,000 total gain; $105,000 taxable gain.

b. $10,000 total gain; $15,000 taxable gain.

c. $60,000 total gain; $0 taxable gain.

d. $60,000 total gain; $15,000 taxable gain.

e. None of the above.