Question 1. Leigh, who owns a 50% interest in a sporting goods store, was a material participant in the activity for the last fifteen years. She retired from the sporting goods store at the end of last y

1. Leigh, who owns a 50% interest in a sporting goods store, was a material participant in the activity for the last fifteen years. She retired from the sporting goods store at the end of last year and will not participate in the activity in the future. However, she continues to be a material participant in an office supply store in which she is a 50% partner. The operations of the sporting goods store resulted in a loss for the current year and Leigh’s share of the loss is $40,000. Leigh’s share of the income from the office supply store is $75,000. She does not own interests in any other activities.

a. Leigh cannot deduct the $40,000 loss from the sporting goods store because she is not a material participant.

b. Leigh can offset the $40,000 loss from the sporting goods store against the $75,000 of income from the office supply store.

c. Leigh will not be able to deduct any losses from the sporting goods store until future years.

d. Leigh will not be able to deduct any losses from the sporting goods store until she has been retired for at least four years.

e. None of the above.

2. Jed spends 32 hours a week, 50 weeks a year, operating a bicycle rental store that he owns at a resort community. He also owns a music store in another city that is operated by a full-time employee. He elects not to group them together as a single activity under the “appropriate economic unit” standard. Jed spends 40 hours per year working at the music store.

a. Neither store is a passive activity.

b. Both stores are passive activities.

c. Only the bicycle rental store is a passive activity.

d. Only the music store is a passive activity.

e. None of the above.

3. Jenny spends 32 hours a week, 50 weeks a year, operating a bicycle rental store that she owns at a resort community. She also owns a music store in another city that is operated by a full-time employee. Jenny spends 140 hours per year working at the music store. She elects not to group them together as a single activity under the “appropriate economic unit” standard.

a. Neither store is a passive activity.

b. Both stores are passive activities.

c. Only the bicycle rental store is a passive activity.

d. Only the music store is a passive activity.

e. None of the above.

4. Josh has investments in two passive activities. Activity A, acquired three years ago, produces income in the current year of $60,000. Activity B, acquired last year, produces a loss of $100,000 in the current year. At the beginning of this year, Josh’s at­risk amounts in Activities A and B are $10,000 and $100,000, respectively. What is the amount of Josh’s suspended

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