25 May Question 1. Sherri owns an interest in a business that is not a
Question
1. Sherri owns an interest in a business that is not a passive activity and in which she has $20,000 at risk. If the business incurs a loss from operations during the year and her share of the loss is $32,000, this loss will be fully deductible.
a. True
b. False
2. 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 atrisk amount at the end of the year is $44,000.
a. True
b. False
3. 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.
a. True
b. False
.
4. Judy owns a 20% interest in a partnership (not real estate) in which her at-risk amount was $35,000 at the beginning of the year. The partnership borrowed $50,000 on a recourse note and made a $40,000 profit during the year. Her at-risk amount at the end of the year is $43,000.
a. True
b. False
5. Tonya owns an interest in an activity (not real estate) that converted recourse financing to nonrecourse financing. Recapture of previously allowed losses is required if Tonya’s atrisk amount is reduced below zero as a result of the debt restructuring.
a. True
b. False
6. Kelly, who earns a yearly salary of $120,000, sold an activity with a suspended passive loss of $44,000. The activity was sold at a loss and Kelly has no other passive activities. The suspended loss is not deductible.
a. True
b. False
7. 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
8. Jackson Company incurs a $50,000 loss on a passive activity during the year. The company has active income of $34,000 and portfolio income of $24,000. If Jackson is a personal service corporation, it may deduct $34,000 of the passive loss.
a. True
b. False
9. Oriole Corporation has active income of $45,000 and a passive loss of $23,000 in the current year. Under an exception, Oriole can deduct the $23,000 loss if it is a personal service corporation.
a. True
b. False
10.Gray Company, a closely held C corporation, incurs a $50,000 loss on a passive activity during the year. The company has active income of $34,000 and portfolio income of $24,000. If Gray is not a personal service corporation, it may deduct $34,000 of the passive loss.
a. True
b. False
11.Wolf Corporation has active income of $55,000 and a passive loss of $33,000 in the current year. Wolf cannot deduct the $33,000 loss if it is a closely held C corporation that is not a personal service corporation.
a. True
b. False
12.Linda owns investments that produce portfolio income and Activity A that produces losses. From a tax perspective, Linda will be better off if Activity A is notpassive.
a. True
b. False
13.Nathan owns Activity A, which produces income, and Activity B, which produces passive losses. From a tax planning perspective, Nathan will be better off if Activity A is passive.
a. True
b. False
14.A taxpayer is considered to be a material participant if he or she spends more than 500 hours in the activity.
a. True
b. False
15.Dick participates in an activity for 90 hours during the year. He has no employees and there are no other participants. Dick is a material participant.
a. True
b. False
16.Mary Jane participates for 100 hours during the year in an activity she owns. She has no employees and is the only participant in the activity. The activity is a significant participation activity.
a. True
b. False
.
17.A taxpayer is considered to be a material participant in a significant participation activity if he or she spends at least 400 hours in the activity.
a. True
b. False
.
18.Tom participates for 300 hours in Activity A and 250 hours in Activity B, both of which are nonrental businesses. Both activities are active.
a. True
b. False
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