25 May Question 1. When a taxpayer disposes of a passive activity by gift, what happens to any unused
Question
1. When a taxpayer disposes of a passive activity by gift, what happens to any unused passive losses?
2. Describe the general rules that limit the deduction of investment interest expense.
3. Identify the types of income that are classified as investment income. Discuss the flexibility that a taxpayer has with respect to certain types of income that may potentially be considered investment income.
Match the term with the correct response. More than one response may be correct.
a. Taxpayer devotes time aggregating more than 500 hours in all significant participation activities during the year.
b. Participates in making management decisions in a significant and bonafide sense.
c. One in which the individual’s participation equals more than 100 hours during the year.
d. Taxpayer devotes time in the activity which constitutes substantially all of the participation in the activity of all individuals.
e. Both options a. and d. are correct.
f. No correct choice is given.
4. Significant participation activity.
5. At-risk amount.
6. Material participation.
7. Active participation.
Match the treatment for the following types of transactions.
a. The losses are allowed in the years in which gain is recognized.
b. Suspended losses are allowed to offset the income from the activity, other passive activities, or active income.
c. Suspended losses are allowed to the taxpayer to the extent they exceed the amount, if any, of the step-up in basis allowed.
d. Any suspended losses may be used in the current year.
e. The suspended losses are added to the basis of the property.
f. No correct choice is given.
8. Treatment of a disposition of a passive activity by gift.
9. Treatment of a disposition of a passive activity at death.
10. Treatment of an installment sale of a passive activity.
11. Treatment of a sale of a passive activity where all of the realized gain or loss is recognized currently.
12. Treatment of suspended credits when passive activity is sold at a loss.
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