1. Josie, an unmarried taxpayer, has $155,000 in salary, $

1. Josie, an unmarried taxpayer, has $155,000 in salary, $10,000 in income from a limited partnership, and a $26,000 passive 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.

2. Kate dies owning a passive activity with an adjusted basis of $100,000. Its fair market value at that date is

$130,000. Suspended losses relating to the property were $45,000.

a. The heir’s adjusted basis is $130,000, and Kate’s final deduction is $15,000.

b. The heir’s adjusted basis is $130,000, and Kate’s final deduction is $45,000.

c. The heir’s adjusted basis is $100,000, and Kate’s final deduction is $45,000.

d. The heir’s adjusted basis is $175,000, and Kate has no final deduction.

e. None of the above.

3. Caroyl made a gift to Tim of a passive activity (adjusted basis of $50,000, suspended losses of $20,000, and a fair market value of $80,000). No gift tax resulted from the transfer.

a. Tim’s adjusted basis is $80,000, and Tim can deduct the $20,000 of suspended losses in the future.

b. Tim’s adjusted basis is $80,000.

c. Tim’s adjusted basis is $50,000, and the suspended losses are lost.

d. Tim’s adjusted basis is $50,000, and Tim can deduct the $20,000 of suspended losses in the future.

e. None of the above.

4. Identify from the list below the type of disposition of a passive activity where the taxpayer keeps the suspended losses of the disposed activity and utilizes them on a subsequent taxable disposition.

a. Disposition of a passive activity by gift.

b. Disposition of a passive activity at death.

c. Installment sale of a passive activity.

d. All of the above.

e. None of the above.

5. Raul is married and files a joint tax return. His current investment interest expense of $95,000 is related to a loan used to purchase a parcel of unimproved land. Income from investments [dividends (not qualified) and interest] total $18,000. Raul paid $5,000 of real estate taxes on the unimproved land. He also has a $4,500 net long-term capital gain from the sale of another parcel of unimproved land. Raul’s maximuminvestment interest deduction for the year is:

a. $95,000.

b. $18,000.

c. $17,500.

d. $13,000.

e. None of the above.

6. Judy incurred $58,500 of interest expense this year related to her investments. Her investment income includes $15,000 of interest, $9,000 of qualified dividends, and a $22,500 net capital gain on the sale of securities. The maximumamount of Judy’s investment interest expense deduction for the year is:

a. $15,000.

b. $24,000.

c. $37,500.

d. $46,500.

e. None of the above.

7. 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.

8. In 2014, Emily invests $120,000 in a limited partnership that is not a passive activity. During 2014, her share of the partnership loss is $90,000. In 2015, her share of the partnership loss is $50,000. How much can Emily deduct in 2014 and 2015?

9. In 2013, Kelly earns a salary of $200,000 and invests $40,000 for a 20% interest in a partnership not subject to the passive loss rules. Through the use of $800,000 of nonrecourse financing, the partnership acquires assets worth $1 million. The activity produces a loss of $150,000, of which Kelly’s share is $30,000. In 2014, Kelly’s share of the loss from the partnership is $15,000. How much of the loss from the partnership can Kelly deduct?

10.Lindsey, an attorney, earns $125,000 from her law practice in the current year. In addition, she receives $50,000 in dividends and interest during the year. Further, she incurs a loss of $40,000 from an investment in a passive activity. What is Lindsey’s AGI for the year after considering the passive investment?

11.Anne sells a rental house for $100,000 (adjusted basis of $55,000). During her ownership, $60,000 of losses have been suspended under the passive activity loss rules. Determine the tax treatment to Anne on the disposition of the property.

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